Efficiency analysis)??The Brenmar Sales Company had a gross profit margin? (gros
ID: 1171184 • Letter: E
Question
Efficiency analysis)??The Brenmar Sales Company had a gross profit margin? (gross
profits divided by
?sales)
of
31
percent and sales of
$ 9.4
million last year.??
71
percent of the? firm's sales are on? credit, and the remainder are cash sales. ? Brenmar's current assets equal
$ 1.2
?million, its current liabilities equal
$ 298 comma 200
?,
and it has
$ 100 comma 300
in cash plus marketable securities.
a. If? Brenmar's accounts receivable equal
$ 563 comma 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
9.8
times. What is the level of? Brenmar's inventories?
a.??If? Brenmar's accounts receivable equal
$ 563 comma 200
?,
what is its average collection? period?
The? company's average collection period will be
nothing
days.???(Round to two decimal? places.)
Explanation / Answer
Net credit sales = 9,400,000 * 0.71 = $6,674,000
Receivables turnover ratio = net credit sales / average receivables
Receivables turnover ratio = 6,674,000 / 563,200
Receivables turnover ratio = 11.85
Average collection period = 365 / 11.85
Average collection period = 31 days
b)
20 = 365 / receivables turnover ratio
receivables turnover ratio = 365 / 20
receivables turnover ratio = 18.25
18.25 = 6,674,000 / average receivables
average receivables = 6,674,000 / 18.25
average receivables = $365,698.63
c)
Gross profit margin = gross profit / sales
0.31 = gross profit / 9,400,000
gross profit = 2,914,400
Cost of goods sold = sales - gross profit
Cost of goods sold = 9,400,000 - 2,914,400 = 6,485,600
Inventory turnover ratio = COGS / average inventory
9.8 = 6,485,600 / average inventory
average inventory = $661,795.92
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