Answer:
Turnover of Accounts receivable = 13.33
Turnover of Inventory = 12.63
Days for Accounts receivable = 27.38
Days for Inventory = 28.90
Explanation:
given data
sale = $1,000,000
credit = 70 percent
average gross profit = 40 percent
we consider :
ending beginning
account receivable $60000 $45000
inventory $25000 $70000
to find out
Compute the turnover for the accounts receivable and inventory, the average days to collect receivables, and the average days to sell inventory
solution
we get here Credit sales that is
credit sale = $1,000,000 × 70% ...........1
credit sale = $700,000
and Cost of goods sold is
sold = 1 - Gross profit ..........2
sold = 1 - 40% = 60%
so
Cost of goods sold = $1,000,000 × 60%
Cost of goods sold = $600,000
so
Average Accounts receivable is
Average Accounts receivable = ($60,000+$45,000) ÷ 2
Average Accounts receivable = $52,500
and
Average Inventory = ($25,000+$70,000) ÷ 2
Average Inventory = $47,500
so
here Accounts Receivable turnover will be as
Accounts Receivable turnover = Credit sales ÷ Average Accounts receivable ................3
and
Inventory turnover = Cost of goods sold ÷ Average Inventory ...............4
so
Turnover will be for Accounts receivable and Inventory will be
Turnover of Accounts receivable = ($700,000 ÷ $52,500) = 13.33
Turnover of Inventory = ($600,000 ÷ $47,500) = 12.63
and
Accounts receivable days will be = 365 ÷ Accounts receivable turnover ........5
and
Inventory days = 365 ÷ Inventory turnover ................6
so as that
Days for Accounts receivable and Inventory will be
Days for Accounts receivable = (365 ÷ 13.33) = 27.38
Days for Inventory = (365 ÷ 12.63) = 28.90
