(Using financial ratios) The Brenmar Sales Company had a gross profit margin (gr
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Question
(Using financial ratios) The Brenmar Sales Company had a gross profit margin (gross profits : sales) of 30.6 percent and sales of S9.8 million last year. Seventy-five percent of the firm?s sales are on credit and the remainder are cash sales. Brenmar?s current assets equal $2.3 million, its current liabilities equal $300,000, and it has $95,000 in cash plus marketable securities. a. If Brenmar?s accounts receivable are S562,500, what is its average collection period? b. If Brenmar reduces its average collection period to 21 days, what will be its new level of accounts receivable? c. Brenmar?s inventory turnover ratio is 9.2 times. What is the level of Brenmar?s inventories? a. If Brenmar?s accounts receivable are S562,500, its average collection period is days. (Round to two decimal places.)Explanation / Answer
Total Sales = $9.8million
Credit Sales = 0.75*9,800,000
a. If Brenmar?s accounts receivable are $562,500, what is its average collection period?
Average Collection Period = 365*Accounts receivable/Credit Sales
=365*562500/(0.75*9800000)
= 27.93days
b. If Brenmar reduces its average collection period to 21 days, what will be its new level of accounts receivable?
New Accounts Receivable = (21*0.75*9800000)/365 = $422876.7
c. Brenmar?s inventory turnover ratio is 9.2 times. What is the level of Brenmar?s inventories?
inventory Turnover Ratio = Sales/ Inventory
Inventory= Sales/ Inventory Turnover ratio
= 9800000/9.2
= $1065217
Hope this helps,regards
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