Question

Richards & James is a multinational corporation that manufactures and markets many household products. Last year, sales for the company were $69,000 (all amounts in millions). The annual report did not disclose the amount of credit sales, so we will assume that 70 percent of sales were on credit. The average gross profit on sales was 48 percent. Additional account balances were:

	Ending			Beginning
Accounts receivable (net)	$	7,900		$	6,400
Inventory		6,832			6,295

Required:

1. Compute Richards & James' receivable turnover ratio and its inventory turnover ratio. (Round intermediate calculations to the nearest whole dollar. Round your answers to 2 decimal places.)

	Turnover
Accounts receivable
Inventory

2. How many days does it take for the company to collect its accounts receivable and sell its inventory? (Use 365 days in a year. Round your answers to 2 decimal places.)

	Days
To collect accounts receivable
To sell inventory

Answer 1

1]

Accounts receivable turnover = credit sales / average accounts receivable

Accounts receivable turnover = ($69,000 * 70%) / (($7,900 + $6,400) / 2)

Accounts receivable turnover = 6.76 times

inventory turnover ratio = COGS / average inventory

COGS = sales * (1 - gross profit %) = 1 - 48% = 52%

inventory turnover ratio = ($69,000 * 52%) / (($6,832 + $6,295) / 2)

inventory turnover ratio = 5.47 times

2]

accounts receivable days = 365 / Accounts receivable turnover

accounts receivable days = 365 / 6.76 = 54.03 days

inventory days = 365 / inventory turnover

inventory days = 365 / 5.47 = 66.77 days