Problem: Until recently, Augean Cleaning Products sold its products on terms of net 60, with an average collection period of 75 days. In an attempt to induce customers to pay more promptly, it has changed its terms to 2/10, EOM, net 60. The initial effect of the changed terms is as follows:
Book for guidance: Operations Management for Competitive Advantage by Chase, Jacobs, & Aquilano
Percent of sales with cash discounts Average collection of periods days
Cash discount Net
Calculate the effect of the changed terms. Assume
• Sales volume is unchanged.
• The interest rate is 12 percent.
• There are no defaults.
• Cost of goods sold is 80 percent of sales.