Question

A Corp. had total sales of $1,000,000 in 2018 (80 % of its sales are credit). The company's gross profit margin is 20%, its ending inventory is $100,000, and its accounts receivable balance is $60,000. What additional amount of cash could the firm have generated if it had increased its inventory turnover ratio to 10.0 and reduced its average collection period to 22.375 days. With the same level of sales?

Answer #1

Current Scenario:

Credit Sales = 80% * Total Sales

Credit Sales = 80% * $1,000,000

Credit Sales = $800,000

Gross Profit = 20% * Total Sales

Gross Profit = 20% * $1,000,000

Gross Profit = $200,000

Gross Profit Margin = Total Sales - Cost of Goods Sold

$200,000 = $1,000,000 - Cost of Goods Sold

Cost of Goods Sold = $800,000

New Scenario:

Inventory Turnover = Cost of Goods Sold / Inventory

10.00 = $800,000 / Inventory

Inventory = $80,000

Average Collection Period = 365 * Accounts Receivable / Credit
Sales

22.375 = 365 * Accounts Receivable / $800,000

Accounts Receivable = $49,041.10

Additional Cash Generated = Change in Inventory + Change in
Accounts Receivable

Additional Cash Generated = ($100,000 - $80,000) + ($60,000 -
$49,041.10)

Additional Cash Generated = $30,958.90

(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...

(Evaluating liquidity) The Tabor Sales Company had a gross
profit margin (gross profits ÷ sales) of 30.0 percent and sales
of $9.0 million last year. Seventy-five percent of the firm's
sales are on credit and the remainder are cash sales. Tabor's
current assets equal $1.5 million, its current liabilities equal
$300,000, and it has $100,000 in cash plus marketable
securities.
a. If Tabor's accounts receivable are $562,500, what is its
average collection period?
b. If Tabor reduces its average collection...

The Brenmar Sales Company had a gross profit margin (gross
profits÷sales) of 34 percent and sales of $8.7 million last year.
70 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 $295,900, and it has $109,500 in cash
plus marketable securities.
a. If Brenmar's accounts receivable equal $562,300, what is
its average collection period?
b. If Brenmar reduces its average collection period to 25...

The Tabor Sales Company had a gross profit margin (gross profits
divided by sales) of 30.7 percent and sales of $9.4 million last
year. Seventy-five percent of the firm's sales are on credit and
the remainder are cash sales. Tabor's current assets equal $2.7
million, its current liabilities equal $283000 , and it has $98000
in cash plus marketable securities.
a. If Tabor's accounts receivable are $562500 , what is its
average collection period?
b. If Tabor reduces its average...

The Brenmar Sales Company had a gross profit margin (gross
profits divided by ÷sales) of 25 percent and sales of $ 9.5
million last year. 70 percent of the firm's sales are on credit,
and the remainder are cash sales. Brenmar's current assets equal
$ 1.3 million, its current liabilities equal $298,600, and it has
$104,200 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...

In 2020, Nash Company has net credit sales of $1,030,000 for the
year. It had a beginning accounts receivable (net) balance of
$100,000 and an ending accounts receivable (net) balance of
$106,000.
Compute Nash Company’s accounts receivable turnover.
(Round answer to 1 decimal place, e.g.
2.5.)
Accounts receivable turnover
times
Compute Nash Company’s average collection period in days.
(Round answer to 1 decimal place, e.g. 2.5. Use 365
days for calculations.)
Average collection period
days

?(Evaluatingliquidity?)
The Tabor Sales Company had a gross profit margin?
(grossprofitsdivided by÷?sales)of 30.3 percent and sales of ?$9.1
million last year.? Seventy-five percent of the? firm's sales are
on credit and the remainder are cash sales.? Tabor's current assets
equal ?$2.7 ?million, its current liabilities equal ?$310,000 and
it has 105,000 in cash plus marketable securities.
a. If? Tabor's accounts receivable are
?$562,500 what is its average collection? period?
b. If Tabor reduces its average collection
period to 24 ?days,...

(Evaluating liquidity) The Tabor Sales Company had a gross
profit margin (gross profits divided by ÷sales) of 30.4 percent
and sales of $9.2 million last year. Seventy-five percent of the
firm's sales are on credit and the remainder are cash sales.
Tabor's current assets equal $2.1 million, its current
liabilities equal $319,000, and it has $99,000 in cash plus
marketable securities.
a. If Tabor's accounts receivable are $562,500, what is its
average collection period?
b. If Tabor reduces its average...

(Efficiency analysis) The Brenmar Sales Company had a gross
profit margin (gross profits÷sales) of 32 percent and sales of
$9.8 million last year. 78 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 $295,600,
and it has $102,300 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...

(Evaluating liquidity) The Tabor Sales Company had a gross
profit margin (gross profits divided by sales) of 30.0 percent
and sales of $9.0 million last year. Seventy-five percent of the
firm's sales are on credit and the remainder are cash sales.
Tabor's current assets equal $1.5 million, its current
liabilities equal $300 comma 000, and it has $100 comma 000 in
cash plus marketable securities.
a. If Tabor's accounts receivable are $562 comma 500, what is
its average collection period?...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 34 minutes ago

asked 40 minutes ago

asked 43 minutes ago

asked 50 minutes ago

asked 56 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago