Question

The Brenmar Sales Company had a gross profit margin​ (gross profitsdivided by​sales) of 26 percent and sales of $ 8.3 million last year. 78 percent of the​ firm's sales are on​ credit, and the remainder are cash sales. ​ Brenmar's current assets equal $ 1.9 ​million, its current liabilities equal $ 298 comma 900​, and it has $ 108 comma 800 in cash plus marketable securities. a. If​ Brenmar's accounts receivable equal $ 562 comma 300​, what is its average collection​ period? b. If Brenmar reduces its average collection period to 15 ​days, what will be its new level of accounts​ receivable? c. ​Brenmar's inventory turnover ratio is 9.2 times. What is the level of​ Brenmar's inventories?

Answer 1

a. 31.70 days

b. $266,054.79

c. $667,608.70

Step-by-step explanation:

a. If​ Brenmar's accounts receivable equal $ 562 comma 300​, what is its average collection​ period?

Credit sales = $8,300,000 * 78% = $6,474,000

Average collection​ period = (Accounts receivable / Credit sales) * 365 = ($562,300 / $6,474,000) * 365 = 31.70 days

b. If Brenmar reduces its average collection period to 15 ​days, what will be its new level of accounts​ receivable?

Average Collection Period=365*Account Receivables/Credit Sales

New Account Receivables =Average Collection Period * (Credit Sales / 365) = 15 * ($6,474,000 / 365) = $266,054.79

c. ​Brenmar's inventory turnover ratio is 9.2 times. What is the level of​ Brenmar's inventories?

Gross Profit = Sales * Gross Profit Margin = $8,300,000 * 26% = $2,158,000

Cost of goods sold = Sales - Gross Profit = $8,300,000 - 2,158,000 = $6,142,000

Inventory = Cost of goods sold / Inventory Turnover Ratio = $6,142,000 / 9.2 = $667,608.70