Sellograph Corporation reports sales of $10 million for Year 2, with a gross pro

Question

Sellograph Corporation reports sales of $10 million for Year 2, with a gross profit margin of 40%. 20% of Sellograph's sales are on credit. Year 1 Year 2 Accounts receivable $ 150,000 $ 170,000 Inventory 900,000 1,000,000 Accounts payable 1,100,000 1,200,000

Days in inventory at the end of Year 2 is closest to:

Sellograph Corporation reports sales of $10 million for Year 2, with a gross profit margin of 40%. 20% of Sellograph's sales are on credit. Year 1 Year 2 Accounts receivable $ 150,000 $ 170,000 Inventory 900,000 1,000,000 Accounts payable 1,100,000 1,200,000

Days in inventory at the end of Year 2 is closest to:

Explanation / Answer

Accounts payable days outstanding at the end of Year 2 = 365/ payable turnover

   = 365 / 5.30

   = 68.87 days

Notes: payable turnover = purchase / average treade payable

   = cost of goods sold + closing stock - opening stock / (1100000+1200000 / 2)

   = 6000000 + 1000000-900000 / 1150000

= 6100000 / 1150000

   = 5.30

gross profit margin = sales - cost of goods sold / sale

0.40 = 10000000 - cost of goods sold / 10000000

   4000000 = 10000000 - cost of goods sold

  cost of goods sold = 10000000 - 4000000

   = $6000000

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