Question

# ​(Efficiency analysis)  The Brenmar Sales Company had a gross profit margin​ (gross profitsdivided by÷​sales) of 27...

​(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.)

(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

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