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

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