Lansing Surgical Supplies Inc, sells on terms of 2/10, net 30. Gross sales for the year are 1.3 million and the collections department estimates that 30 percent of the customers pay on the tenth day and take discounts, 40 percent pay on the thirtieth day, and the remaining 30 percent pay, on average, 40 days after the purchase. (assume 360 days per year)
To calculate the average collection period and the average amount of uncollected sales for Lansing Surgical Supplies Inc., we need to analyze the payment terms and customer payment behavior.
1. Calculate the discount period:
The terms "2/10, net 30" mean that customers can take a 2% discount if they pay within 10 days. After 10 days, the full amount is due within 30 days.
2. Calculate the average collection period:
The average collection period is the average time it takes for customers to pay after making a purchase. We need to consider the payment behavior of customers who take the discount, those who pay within the net period, and those who pay beyond the net period.
a. Customers who take the discount:
30% of customers take a 2% discount and pay on the tenth day. As per the terms, this is within the discount period, so they pay within 10 days.
b. Customers who pay within the net period:
40% of customers pay within the net 30 days. This means they pay between the 11th and 30th day after purchase.
c. Customers who pay beyond the net period:
The remaining 30% of customers pay, on average, 40 days after the purchase. This means they pay between the 31st and 70th day after purchase (30 days after the net period).
To calculate the average collection period:
(30% * 10 days) + (40% * 30 days) + (30% * 40 days)
3. Calculate the average amount of uncollected sales:
Uncollected sales are the amounts that have not been paid by customers within the estimated collection period. We need to calculate the uncollected sales for each payment behavior group (discount, net period, beyond net period) and then sum them up.
a. Uncollected sales from customers who take the discount:
For this group, the average uncollected sales is the amount of gross sales multiplied by the discount percentage.
(30% * 1.3 million) * (1 - 2%) = Uncollected sales from customers taking discount
b. Uncollected sales from customers who pay within the net period:
For this group, the average uncollected sales is the amount of gross sales multiplied by the percentage of customers who pay within the net period.
(40% * 1.3 million) = Uncollected sales from customers paying within net period
c. Uncollected sales from customers who pay beyond the net period:
For this group, the average uncollected sales is the amount of gross sales multiplied by the percentage of customers who pay beyond the net period.
(30% * 1.3 million) = Uncollected sales from customers paying beyond net period
To calculate the average amount of uncollected sales:
Uncollected sales from customers taking discount + Uncollected sales from customers paying within net period + Uncollected sales from customers paying beyond net period
Remember to convert the collection period and uncollected sales to a per-year basis since the terms are based on a 360-day year.
Please plug in the appropriate values into the formulas provided to obtain the final results.