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Richards & James is a multinational corporation that manufactures and markets many household products. Last year,...

Richards & James is a multinational corporation that manufactures and markets many household products. Last year, sales for the company were $75,000 (all amounts in millions). The annual report did not disclose the amount of credit sales, so we will assume that 80 percent of sales were on credit. The average gross profit on sales was 44 percent. Additional account balances were:


Ending Beginning
Accounts receivable (net) $ 6,700 $ 6,500
Inventory 6,827 6,301


Required:

1. Compute Richards & James receivable turnover ratio and its inventory turnover ratio.

2. How many days does it take for the Company to collect its accounts receivable and sell its inventory.

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Homework Answers

Answer #1

1.

Accounts Receiveble Turnover ratio = Net credit sales / Average accounts Receiveble
Accounts Receiveble Turnover ratio = ($75,000*80%) / (($6,700+$6,500)/2)
Accounts Receiveble Turnover ratio = 9.09
Inventory turn over ratio = Cost of goods sold / Average inventory
Inventory turn over ratio = ($75,000*66%) / (($6,827+$6,301)/2)
Inventory turn over ratio = 7.54113

2.

Days to collect = 365/Receivables turn over ratio
Days to collect = 365/9.09
Days to collect = 40.15
Number of days sales in inventory = Ending inventory / Cost of goods sold * 365
Number of days sales in inventory = $6,827 / ($75,000*66%)*365
Number of days sales in inventory = 50.34 Days

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