Need A through C. (Using financial ratios) The Brenmar Sales Company had a gross

Question

Need A through C.

(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 $562,500, what is its average collection period9 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

a) Average Collection Period = Account Recievable/ Credit Sale * 365

Average Collection Period = 562500/ (9800000*75%) * 365

Average Collection Period = 27.93 Days

b) New Level of Account recievable = Average Collection Period/365 * Credit Sale

New Level of Account recievable = 21/365 * (9800000*75%)

New Level of Account recievable = $ 422,876.71

c) Inventory = Cost of Good Sold/ Inventory turnover Ratio

Cost of Good Sold = 9800000 *(1-30.60%) = $ 6801200

Inventory turnover Ratio = 9.2

Inventory = 6801200/9.2

Inventory = $ 739,260.87

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