Question

if a firm has net sales of $400,000, annual cost of goods sold of $315,000 , an inventory turnover of 4.5 times a year, and an accounts receivable turnover of five times a year, the combined investment in inventories and accounts receivable would be:

a. $64,500

b. $122,500

c. $150,000

d. $92,000

Answer 1

net sales = $400,000

annual cost of goods sold = $315,000

inventory turnover = cost of goods sold for a period / average inventory for the period = 4.5 times a year

average inventory for the period = $315,000/4.5 = $70,000

accounts receivable turnover = net sales/average accounts receivable for that period = 5 times a year

average accounts receivable = $400,000/5 = $80,000

combined investment in inventories and accounts receivable = $80,000 + $70,000 = $150,000 (c)

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