Question

Double West Suppliers (DWS) reported sales for the year of $240,000, all on credit. The average gross profit percentage was 35 percent on sales. Account balances follow Accounts receivable (net) Inventory Beginning $ 39,000 54,00 Ending $50,000 34,000 Required: 1. Compute the following turnover ratios 2. By dividing 365 by your ratios from requirement 1, calculate the average days to collect receivables and the average days to sell inventory Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the following turnover ratios. (Round your answers to I decimal place.)

Answer 1

(1)

(a)

Inventory turnover ratio = cost of goods sold/average inventory

= $156000/$44000

= 3.5 times

Where,

cost of goods sold = sales - profit

= $240000 - ($240000 x 35%) = $156000

Average inventory = (beginning inventory + ending inventory)/2

= ($54000 + $34000)/2 = $44000

(b)

Accounts receivable turnover ratio = net credit sales/average accounts receivable

= $240000/$44500

= 5.4 times

Where average accounts receivable = (beginning accounts receivable + ending accounts receivable)/2

= ($39000 + $50000)/2 = $44500

(2)

(a)

average days to collect = 365/accounts receivable turnover ratio

= 365/5.4

= 67.6 days

(b)

Average days to sell = 365/inventory turnover ratio

= 365/3.5

= 104.3 days