(Efficiency analysis) The Brenmar Sales Company had a gross profit margin (gross
ID: 391792 • Letter: #
Question
(Efficiency analysis)The Brenmar Sales Company had a gross profit margin (gross
profitsdivided by ÷sales)
of
3131
percent and sales of
$ 9.8$9.8
million last year.
7777
percent of the firm's sales are on credit, and the remainder are cash sales. Brenmar's current assets equal
$ 1.4$1.4
million, its current liabilities equal
$ 298 comma 200$298,200,
and it has
$ 107 comma 400$107,400
in cash plus marketable securities.a. If Brenmar's accounts receivable equal
$ 562 comma 100$562,100,
what is its average collection period?b. If Brenmar reduces its average collection period to
1515
days, what will be its new level of accounts receivable?c.Brenmar's inventory turnover ratio is
9.79.7
times. What is the level of Brenmar's inventories?
a.If Brenmar's accounts receivable equal
$ 562 comma 100$562,100,
what is its average collection period?The company's average collection period will be
nothing
days.(Round to two decimal places.)
Explanation / Answer
a. If Brenmar's accounts receivable equal $562,100, what is its average collection period?
Credit sales= 0.77* 9,800,000 = 7,546,000
Average daily credit sales =7,546,000 /365 =20673.97
Average collection period = Accounts receivable /average daily credit sales
=$562,100/ 20673.97
= 27.19 days
The companies average collection period will be 27.19 days.
b. If Brenmar reduces its average collection period to 15 days, what will be its new level of accounts receivable?
Accounts receivable= Average collection period *average daily credit sales
=15*20673.97
= $310109.55
c. Brenmar's inventory turnover rate is 9.7 times. What is the level of Brenmar's inventories?
COGS = Cost of goods sold
Gross profit margin = (Total sales- COGS )/ Total sales
0.31= (9,800,000-COGS)/ 9,800,000
=6,762,000
Inventory turnover ratio= COGS/Average inventory
Average inventory = COGS/ Inventory turnover ratio
= 6,762,000 /9.7
=$697113.4
Brenmar's inventories will be $_697113.4_____
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