The Sales Company had a grease profit margin (gross profits + sales) of 30 perca

Question

The Sales Company had a grease profit margin (gross profits + sales) of 30 percale and sales of $8.2 million last year 80 percent of the farm's sales are on credit, and the cash sales. Brenmar's current assets equal $1.3 million, its current equal and it has $100,500 in cash plus If Brenmar's accounts receivable equal $563,000 what is its average collection period? If Brenmar's reduces its average collection period to 25 days what will be its now level to accounts receivable? Brenmar's inventory is 9.5 times, what is the level of Brenmar's

Explanation / Answer

Brenmar Sales Company All Amounts in $ a. Brenmar's Accounts Receivable amount = $ 563,000 Credit Sales in the Company = 80% of $ 8.2 million = 6560000 $ With this information, the average collection period will be 365 / (6,560,000 / 563,000) = 31.32546 days b. If the average collection period is reduced to 25 days, keeping the credit sales of $ 6,560,000 constant the new Accounts Receivable will be $ 6,560,000 X 25 / 365 = 449315.1 $ c. Inventory Turnover Ratio = Cost of Goods Sold / Inventories Cost of Sales = 70% of sales (since Gross Margin is 30% of Sales) = 70% of $ 8.2 million = 5740000 If the inventory turnover ratio is 9.5 times, the level of Brenmar's Inventories will be $ 5,740,000 / 9.5 = 604210.5 $

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