16.5 Milwaukee Surgical Supplies, Inc., sells on terms of 3/10, net 30. Please read all questions

| March 13, 2016

Milwaukee Surgical Supplies,Inc sells on terms of 3/10, net 30. Gross sales for the year are $1,200,000, and the collections department estimates that 30% of the customers pay on the tenth day and take discounts, 40% pay on the thiritieth day and the remaining 30% pay,on avg,40 days after the purchase.(assume 360 days per year)

a. what is the firm’s avg collection period?

b. what is the firm’s current receivables balance?

c. what would be the firm’s new receivables balance if Milwaukee Surgical toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day?

d. suppose that the firm’s cost of carrying receivables was 8% annually. how much would the toughened credit policy save the firm in annual receivables carrying expense?(assume that the entire amount of receivables had to be financed)

This question 16.5 a –d needs to show how answers were calculated. Also I need the below listed memo assignment completed that is based on the calculations listed above. (I found the 16.5 question listed on this site as already being completed. If the calculations are worked out correctly it would be ok to copy this work.) So this assignment is question 16.5 a-d and the 250 word memo.


The purpose of this assignment is to offer the opportunity for the student to analyze the result of an organization’s average collection period and receivables balance calculation and assess the relative strength of the receivables management of the organization. In addition, the student will be asked to offer suggestions as to how the results could be improved, resulting in stronger receivables management in the future.

Imagine that you are the CFO for Milwaukee Surgical Supplies, Inc. from problem 16.5. After performing the calculations requested by the problem, you have been asked to write a memo identifying whether the results indicate that receivables management are a strength by comparing these results to that of a competitor. (Use Home Infusion’s calculations for ACP and Receivables balance on page 584 of the text as the competitor. (Attached below)) In addition, please offer suggestions as to how Milwaukee Surgical could improve its ACP and Receivables balance in the future through the use of additional discounts or other strategies that you believe would be effective.

Your memo should be no more than 250 words in length.

Home Infusion

“The total amount of accounts receivable outstanding at any given time is determined by two factors: the volume of credit sales and the average length of time between sales and collections. For example, suppose Home Infusion provides an average of 10 home health visits a day at an average net charge of $100 per visit, for $1,000 in average daily billings (ADB). Assuming 250 workdays a year, the company’s annual billings total $1,000 × 250 = $250,000. Furthermore, assume that all services are paid by two third-party payers: one pays for half of the billings 15 days after the service is provided, and the second pays for the other half of billings in 25 days. Home Infusion’s average collection period (ACP), also called days in patient accounts receivable, is 20 days. ACP = (0.5 × 15 days) + (0.5 × 25 days) = 20 days. Assuming a constant uniform rate of services provided, and hence billings, the accounts receivable balance will at any point in time be equal to ABD × ACP. Home Infusion’s receivable balance would be $20,000: Receivables balance = ADB × ACP = $1,000 × 20 = $20,000. What is the cost implication of carrying $20,000 in receivables? The $20,000 on the left side of the balance sheet must be financed by a like amount on the right side.4 Home Infusion uses a bank loan, which has an interest rate of 8 percent, to finance its receivables. Thus, over a year, the firm must pay the bank 0.08 × $20,000 = $1,600 in interest to carry its receivables balance. The cost associated with carrying other current assets can be thought of in a similar way.”

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