Reference no: EM132596618

Fragrances, Ltd., sells 7,500 units of its perfume collection each year at a price per unit of Rs.955. All sales are on credit with terms of 2/10, net 45. The discount is taken by 40 percent of the customers. What is the total amount of the company's accounts receivable? In reaction to sales by its main competitor, Relief Spray, Superior Fragrances, Ltd is considering a change in its credit policy to terms of 4/10, net 30 to preserve its market share. How will this change in policy affect accounts receivable?

HINT: For the calculation of average collection period , you can apply this formula, the average collection period is the percentage of accounts taking the discount times the discount period, plus the percentage of accounts not taking the discount times the days' until full payment is required.

You are required to calculate the following to reach the account receivable

a) Average collection period

b) Receivable turnover

c) Average receivable

d) What will happen if Superior Fragrances Ltd change its policy and increase its discount by looking its competitor? What impact it create on a,b and c.

e) What are some of the factors that determine the length of the credit period? Provide answer in bullet points.