Question

The Jones Sales Company had a gross profit margin of 26% and sales of $9.2 million last year. 76% of the​ firm's sales are on​ credit, and the remainder are cash sales. Jones current assets equal $1.7 million, its current liabilities equal $295,400, and it has $108,300 in cash plus marketable securities.

1. If​ Jones accounts receivable equal $563,200 what is its average collection​ period?
2. If Jones reduces its average collection period to 25 days, what will be its new level of accounts​ receivable?
3. Jones inventory turnover ratio is 9.1 times. What is the level of​ Jones inventories?

Answer 1

The average collection period = (Average accounts receivable/credit sales) * number of days in a year assuming 365 days in a year Credit sales = (0.76 * 9200000) 6,992,000.00 accounts receivable = 563,200 average collection period = (563200/6992000) *365 29.40 days if the average collection period is 25 days then 25 = (accounts receivable/6992000) *365 Accounts receivable = 25*6992000/365) 478,904.11 Gross profit margin = 26% = (sales-cost of goods sold)/Sales 0.26 = (9200000-Cost of goods sold)/9200000 Cost of good sold = (9200000 - (0.26*9200000)) 6,808,000.00 Inventory turnover ratio = Cost of goods sold/ inventory 9.1 = 6808000/Inventory Inventory = (6808000/9.1) 748,131.87