Question

Efficiency analysis)  The Brenmar Sales Company had a gross profit margin​ (gross

profitsdivided by÷​sales) Of 27 percent and sales of 9.1 million last year. 

71percent of the​ firm's sales are on​ credit, and the remainder are cash sales. ​Brenmar's current assets equal $1.5 ​million, its current liabilities equal $ 297,700 and it has $ 107,200 in cash plus marketable securities.

a. If​ Brenmar's accounts receivable equal $562,500​, 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 9.6 times. What is the level of​ Brenmar's inventories?

Answer 1

Ans.	Total Sales =   $9,100,000
	Credit sales = $9,100,000 * 71%        =	$6,461,000
	Gross profit = Total sales * Gross profit margin
	$9,100,000 * 27%            =	$2,457,000
	Cost of goods sold = Total sales - Gross profit
	$9,100,000 - $2,457,000         =	$6,643,000
Ans.   A	Average collection period =   Accounts recievable / Credit sales * Number of days in year
	$562,500 / $6,461,000 * 365
	31.78	days
Ans. B	Average collection period =   Accounts recievable / Credit sales * Number of days in year
	15 =   Accounts recievables / $6,461,000 * 365
	Accounts receivables = 15 * $6,461,000 / 365
	$265,520.55
Ans. C	Inventory turnover = Cost of goods sold / Inventory
	9.6     =      $6,643,000 / Inventory
	Inventory   =   $6,643,000 / 9.6
	$691,979.17