Double West Suppliers (DWS) reported sales for the year of $360,000, all on cred

Question

Double West Suppliers (DWS) reported sales for the year of $360,000, all on credit. The average gross profit percentage was 40 percent on sales. Account balances follow:

Compute the following turnover ratios. (Round your answers to 1 decimal place.)

By dividing 365 by your ratios from requirement 1, calculate the average days to collect receivables and the average days to sell inventory. (Use 365 days in a year. Do not round intermediate calculations. Round turnover ratio calculation and final answers to 1 decimal place.)

Double West Suppliers (DWS) reported sales for the year of $360,000, all on credit. The average gross profit percentage was 40 percent on sales. Account balances follow:

Explanation / Answer

Hi,

Please find the answer a follows:

Part 1:

Accounts Receivables Turnover Ratio = Net Credit Sales/Average Accounts Receivables = 360000/(51000 + 61000)/2 = 6.4 times

Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory = (Sales-Gross Profit)/Average Inventory = (360000 - 40%*360000)/(67000 + 46000)/2 = 3.82 times

Part 2:

Average Days to Collect Receivables = 365/6.4 = 57.03 or 57 days

Average Days to Collect Inventory = 365/3.82 = 95. 5 days

Thanks.

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