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Unformatted text preview: age collection period Turnover of accounts receivable The total variable cost of annual sales under the present and proposed plans can
be found as follows, using the variable cost per unit of $6.
Total variable cost of annual sales
Under present plan: ($6
Under proposed plan: ($6 60,000 units)
63,000 units) $360,000
$378,000 The turnover of accounts receivable is the number of times each year that the
firm’s accounts receivable are actually turned into cash. It is found by dividing the
average collection period into 360 (the number of days assumed in a year).
Turnover of accounts receivable
Under present plan: 360
30 12 Under present plan: 360
45 8 By substituting the cost and turnover data just calculated into Equation 14.9
for each case, we get the following average investments in accounts receivable:
Average investment in accounts receivable
Under present plan: $360,000
12 Under proposed plan: $378,000
$47,250 614 PART 5 Short-Term Financial Decisions The marginal investment in accounts receivable and its cost are calculated as
Cost of marginal investment in accounts receivable
Average investment under propo...
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