Choice "D" is correct. The average collection period represents the weighted average of the periods that accounts receivable are outstanding and is computed as follows:
Customers paying on day 10 x 70% = | 7 |
Customers paying on day 30 x 30% = | 9 |
Average collection period in days | 16 |
Choice "b" is incorrect. This choice provides no reasonable logic but is inserted to further distract the candidate.
Choice "a" is incorrect. This proposed solution mismatches the percentages and the days and represents the sum of the products of 30 × 70 % and 10 × 30%.Choice "c" is incorrect. This proposed solution is purely the sum of the two customer payment patterns presented, 10 and 30.
