Question

Leyton Lumber Company has sales of $10 million per year, all on credit terms calling for payment within 30 days, and its accounts receivable are $2 million. Assume 365 days in year for your calculations.

1. What is Leyton's DSO? Round your answer to two decimal places.
     days
2. 
   
3. What would DSO be if all customers paid on time? Round your answer to two decimal places.
     days
4. 
   
5. How much capital would be released if Leyton could take actions that led to on-time payments? Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $

Answer 1

a. first part

.days sales outstanding = accounts receivable / net credit sales * 365 days

=>$2/10 *365

=>73 days.

b second part.

.30 days.

when customers pay on time , the DSO will be equal to credit terms i.e 30 days here.

3rd part:

capital to be released:

total credit sales / number of days * (existing DSO - new DSO).

=>$10 million / 365 * (73-30)

=>0.02739726027 million*43

=>$1.17808219161 Million

=>$1,178,082.19.