Question

(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 to 20 days, what will be its new level of accounts​ receivable?

c. Brenmar's inventory turnover ratio is 9.6 times. What is the level of​ Brenmar's inventories?

Answer 1

Sales revenue			9800000
Lless: Gross margin @ 32%			3136000
Ccost of goods sold			6664000
Req a:
Average collection period = 365/ Sales * Accounts receivable
		365/ 9800000 * 563200 = 20.98 days
Req b:
20 = 365 / Sales revenue * Accounts receivable
20 = 365/ 9800000 * Accounts receivable
Accounts receivable = 536986
Req c:
Inventory turnovr ratio = COGS / Invntory
Invntory = 6664000/9.6   = 694167