lEfficiancy analysis) AL ei Industries bas credit sales of $155 million a yeer. AL. management reviewed its credd

Question

lEfficiancy analysis) AL ei Industries bas credit sales of $155 million a yeer. AL. management reviewed its credd policy and decided Mal wants to maintain en average collection period oU5. days.. a. What is.° mmimum level &accounts receivable thalPlei can carry and have a 45-day average colleclion period, b. 1.1,41.ei's current accounts receivable colbolion period 1,60 days, how much would have lo reduce level or accounts receivable in order to achieve ils goal of 05 days, a. Mal is Me mirdmum lea &accounts reavablethal.ei can carry and have a 0.S-day average colleclion period? The maximum level or accounts receivable v411 be $0 million. (Round to one decimal oace.)

Help In Homework · Accepted Answer

a) Computation of Maximum Level of Accounts Receivables: Net credit sales in millions $155 Average collection period 45 days Average collection period = 365 / Net credit sales * Average Accounts recievable 45 = 365 / 155 * Average Accounts receivable Average Accounts Receivable = 19.11 millions b) Computation of Reduction in Accounts Receivables Required: when Average collection period is 60 days, the Average Accounts receivable is as under: Average Accounts receivable = 60*155/365 = 25.48 millions Reduction in Accounts receivable required = 25.48 millions - 19.11 millions = 6.37 millions

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lEfficiancy analysis) AL ei Industries bas credit sales of $155 million a yeer

Expert Solution

Archived Solution

a) Computation of Maximum Level of Accounts Receivables:
Net credit sales in millions		$155
Average collection period		45	days

Average collection period = 365 / Net credit sales * Average Accounts recievable
45 =	365 / 155 * Average Accounts receivable
Average Accounts Receivable =	19.11	millions

b) Computation of Reduction in Accounts Receivables Required:
when Average collection period is 60 days, the Average Accounts receivable is as under:
Average Accounts receivable = 60*155/365 = 25.48 millions

Reduction in Accounts receivable required = 25.48 millions - 19.11 millions = 6.37 millions