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3 November, 21:54

Sales for the year for Victor Company were $1,000,000, 70 percent of which were on credit. The average gross profit on sales was 40 percent. Additional account balances were:

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  1. 3 November, 21:58
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    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
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