Question

​(Efficiency analysis)  The Brenmar Sales Company had a gross profit margin​ (gross profitsdivided by​sales) of 32 percent and sales of $ 9.4 million last year.  74 percent of the​ firm's sales are on​ credit, and the remainder are cash sales. ​ Brenmar's current assets equal $ 1.4 ​million, its current liabilities equal $ 300 comma 900​, and it has $ 108 comma 200 in cash plus marketable securities.

a. If​ Brenmar's accounts receivable equal $ 562 comma 100​, what is its average collection​ period?

b. If Brenmar reduces its average collection period to 20 ​days, what will be its new level of accounts​ receivable?

c.Brenmar's inventory turnover ratio is 8.3 times. What is the level of​ Brenmar's inventories?

Answer 1

Ans. A	Average collection period = Accounts receivables / Net credit sales * No. of days in year
	$562,100 / $6,956,000 * 365
	29.49 days
Ans. B	Average collection period = Accounts receivables / Net credit sales * No. of days in year
	20 =   New accounts receivable / $6,956,000 * 365
	New accounts receivable   =   $6,956,000 *20 / 365
	$381,150.68
Ans. C	Inventory turnover = Cost of goods sold / Inventory
	8.3 = $6,392,000 / Inventory
	Inventory = $6,392,000 / 8.3
	$770,120.48
	*WORKING NOTES:
	Gross profit margin = Sales * 32%
	$9,400,000 * 32%
	$3,008,000
	Cost of goods sold = Total sales - Gross profit margin
	$9,400,000 - $3,008,000
	$6,392,000
	Credit sales = Total sales * 74%
	$9,400,000 * 74%
	$6,956,000