Final answer:
The question involves calculating the inventory turnover ratio and receivables turnover ratio to determine the days it takes to sell inventory and collect payment for a firm. These calculations help assess the firm's inventory and accounts receivable management efficiency.
Step-by-step explanation:
The student is asking about the number of days it takes for a firm to sell its inventory and collect the payment on the sale, assuming all sales are on credit. This requires the calculation of two different financial metrics: the inventory turnover ratio and the accounts receivable turnover ratio. These metrics are essential to understand the efficiency of a firm's inventory management and its credit policies.
Calculating Days to Sell Inventory
To calculate the inventory turnover ratio, you take the cost of goods sold (COGS) and divide it by the average inventory. The result gives you how many times the inventory is turned over during a certain period. The formula looks like this:
Inventory Turnover Ratio = COGS / Average Inventory
Using the given data:
Inventory Turnover Ratio = $68,007 / $1,765
Next, you calculate the days it takes to sell the inventory, which is done by dividing the number of days in the period by the inventory turnover ratio. Assume a 365-day year:
Days to Sell Inventory = 365 / Inventory Turnover Ratio
Calculating Days to Collect Receivables
Similarly, to calculate how many days it takes to collect receivables, first calculate the receivables turnover ratio by dividing total credit sales by the average accounts receivable:
Receivables Turnover Ratio = Credit Sales / Average Accounts Receivable
Given that all sales are on credit, you then determine the days to collect receivables:
Days to Collect Receivables = 365 / Receivables Turnover Ratio
By calculating these two sets of days, you can determine the total days from selling inventory to collecting receivables for the firm.