# Fresh And Fruity Foods Case Study Solution

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Week 4 Case Study Fresh &Fruity Foods Inc. 1. Average Collection Period =Accounts Receivable/ Average daily credit sales Accounts receivable =\$209,686 Average daily Credit sales =\$1,179,000/360 =\$3,275 Average collection Period =\$209,686/\$3,275 =64.02 days 2. Cost of forgoing the cash discount: Kdis=2%/100%-2% x 360/f(67)-d(10)= .1307= 13.07% The formula tells us that Fresh and Fruity is effectively paying 13.07% interest to delay paying the discounted amount for 57days (the 67 days on which they pay less the 10 day discount period). 3. Average Collection Period x Average Daily credit Sales= New Accounts receivable 32x 3,275=\$104,800 Freed-up Cash = old accounts receivable \$209,686 - new accounts receivable \$104,800…show more content…
Accounts Payable= Average payment period x Purchases Per Day Average Payment Period= 10 days Purchases Per Day= [969,000-(.02x969,000)]/360 =[969,000-\$19,380]/360 =\$2,638 Accounts payable =10 x \$2,638 =\$26,380 Accounts payable from question 3 \$75,747 Accounts payable from question 4 \$26,380 Size of loan required \$49,367 This is the size of the loan required to take all cash discounts in 10 days. 5. The cost is the 8 percent interest on the bank loan of \$49,367 or \$3,949. The gain is the cash discounts taken of \$19,380. The net gain before tax is \$15,431 (\$19,380-\$3,949). 6. First determine the amount of funds on which interest must be paid. \$49,367- (.08 x \$49,367)- (.20 x \$49,367) =\$49,367-\$3,949-\$9,873 =\$35,545 Then divide the interest payment by this