A company sells 10,000 skateboards a year at $66 each. All sales are on credit, with terms of 3/10, net 30, that is, a 3% discount if payment is made ... Accounting MCQs | Accounting MCQs

A company sells 10,000 skateboards a year at $66 each. All sales are on credit, with terms of 3/10, net 30, that is, a 3% discount if payment is made within 10 days; otherwise full payment is due at the end of 30 days. One half of the customers are expected to take advantage of the discount and pay on day 10. The other half are expected to pay on day 30. Sales are expected to be uniform throughout the year for both types of customers.
What is the expected average collection period for the company?

5 days.
10 days.
15 days.
20 days.Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (D) is correct. The average collection period is the average time it takes to receive payment from customers. Because one-half of the customers will pay on day 10 and half will pay on day 30, the average collection period is 20 days [.5(10 days) + .5(30 days)].