Question

​(Efficiency analysis)  The Brenmar Sales Company had a gross profit margin​ (gross

profitsdivided by÷​sales)

of

27

percent and sales of

$8.5

million last year.  

73

percent of the​ firm's sales are on​ credit, and the remainder are cash sales. ​ Brenmar's current assets equal

$1.1

​million, its current liabilities equal

$303,200​,

and it has

$100,400

in cash plus marketable securities.a. If​ Brenmar's accounts receivable equal

$563,200​,

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

8.6

times. What is the level of​ Brenmar's inventories?

a.  If​ Brenmar's accounts receivable equal

$563,200​,

what is its average collection​ period?The​ company's average collection period will be

nothing

days.  ​(Round to two decimal​ places.)

Answer 1

(a)-Average Collection Period

Average Collection Period = Accounts Receivables / Average Credit Sales per day

= $563,200 / [($8,500,000 x 73%) / 365 Days]

= $563,200 / $17,000.00 per day

= 33.13 Days

(b)-New Level of Accounts Receivables

Average Collection Period = Accounts Receivables / Average Credit Sales per day

20.00 = Accounts Receivables / $17,000.00 per day

Accounts Receivables = $17,000.00 per day x 20 Days

Accounts Receivables = $340,000.00

(c)- Level of​ Brenmar's inventories

Cost of goods sold Ratio = 100% - Gross Profit Ratio

= 100% - 27%

= 73%

Cost of goods sold = Total Sales x Cost of goods sold Ratio

= $8,500,000 x 73%

= $6,205,000

Inventory Turnover ratio = Cost of goods sold / Inventories

8.60 Times = $6,205,000 / Inventories

Inventories = $6,205,000 / 8.60 Times

Inventories = $721,511.63