Richards & James is a multinational corporation that manufactures and markets ma

Question

Richards & James is a multinational corporation that manufactures and markets many household products. Last year, sales for the company were $76,481 (all amounts in millions). The annual report did not disclose the amount of credit sales, so we will assume that 80 percent of sales were on credit. The average gross profit on sales was 47 percent. Additional account balances were:

Required:

1. Compute Richards & James receivable turnover ratio and its inventory turnover ratio. (Round intermediate calculations to the nearest whole dollar and your final answers to 2 decimal places.)

2. How many days does it take for the Company to collect its accounts receivable and sell its inventory. (Use 365 days in a year. Round your answers to 2 decimal places.)

Accounts receivable (net) Inventory $6,638 6,826 EndingBeginning $ 5,736 6,297

Explanation / Answer

1.

2.

Explanation:

Accounts recevable turnover ratio = Net annual credit sales / Average accounts receivable

= $ 76481 * 80 % / 6187

= $ 61,184.8 / 6187

= 9.89 times

Average accounts receivable = opening accounts receivable + closing accounts receivable / 2

= 6638 + 5736 / 2

= 12374 / 2

= 6187

Inventory Turnover ratio = Cost of goods sold / Average Investment

= $ 40534.93 / 6561.5

= 6.18 times

Cost of Goods sold = Sales (1-Gross Profit Ratio)

= $ 76481 (1-0.47)

   =$ 40,534.93

Average inventory= Opening inventory+ closing inventory / 2

   = 6826 + 6297 / 2

   = 6561.5

Average days of Accounts receivable = 365/ Accounts receivable turnover ratio

= 365/ 9.89

= 36.91 days

Average days of inventory = 365 / Inventory turnover ratio

= 365/ 6.18

= 59.06 days

Turnover Accounts receivable 9.89 times Inventory 6.18 times

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