Answer and Explanation:
The computation is shown below:
But the following calculations must be done
Account receivable turnover = Net sales ÷ average account receivable
5 = Net sales ÷ ($900,000 + $1,000,000) ÷ 3
5 = Net sales ÷ $950,000
Now the net sales is
= $950,000 × 5
= $4,750,000
And,
Inventory turnover ratio = Cost of goods sold ÷ average of account receivable
4 = Cost of goods sold ÷ ($1,100,000 + $1,200,000) ÷ 3
4 = Cost of goods sold ÷ $1,150,000
Cost of goods sold
= $1,150,000 × 4
= $4,600,000
Now the gross profit is
a. The gross profit is
= Sales - cost of goods sold
= $4,750,000 - $4,600,000
= $150,000
2. The days sales outstanding in both the cases are as follows:
DSO in inventory
= 360 ÷ 4
= 90 days
And, DSO in account receivable
= 360 ÷ 5
= 72 days
