Question

Premier Corp. has net sales of $920,000, and cost of goods sold equal to 61 percent of net sales. Assume all sales are credit sales. If the firm’s accounts receivable total $124,000 and its operating cycle is 83.0 days, how much inventory does the firm have? (Round answer to nearest dollar, e.g. 5,275.)

The firm’s inventory is $

Answer 1

Given

Net Credit Sales = 920,000$

Cost of Goods Sold = 61% on sales = 61% of 920000 = 561,200$

Accounts Receivable = 124,000$

Operating Cycle = 83 days

Account Receivable Days = 365*Accounts Receivable / Credit Sales = 365*124000/920000 = 49.20 days

Inventory days + Account Receivable Days = Operating Cycle days

Inventory Days + 49 = 83

Inventory days = 83-49 = 34 days

Inventory Days = 365*Inventory/Cost of Goods Sold

34 = 365*Inventory / 561200

Inevntory = 34*561200/365 = 52,276.1644

Inventory = 52,276.16$

Assumptions:

I took 365 days in an year.

I assumed operating cycle which is given in question is gross operating cycle.