The Brenmar Sales Company had a gross profit margin (gross profitsdivided by sales) of 26 percent and sales of $ 8.3 million last year. 78 percent of the firm's sales are on credit, and the remainder are cash sales. Brenmar's current assets equal $ 1.9 million, its current liabilities equal $ 298 comma 900 , and it has $ 108 comma 800 in cash plus marketable securities. a. If Brenmar's accounts receivable equal $ 562 comma 300 , 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 9.2 times. What is the level of Brenmar's inventories?

a. 31.70 days

b. $266,054.79

c. $667,608.70

Explanation:

a. If Brenmar's accounts receivable equal $ 562 comma 300 , what is its average collection period?

Credit sales = $8,300,000 * 78% = $6,474,000

Average collection period = (Accounts receivable / Credit sales) * 365 = ($562,300 / $6,474,000) * 365 = 31.70 days

b. If Brenmar reduces its average collection period to 15 days, what will be its new level of accounts receivable?

Average Collection Period=365*Account Receivables/Credit Sales

New Account Receivables = Average Collection Period * (Credit Sales / 365) = 15 * ($6,474,000 / 365) = $266,054.79

c. Brenmar's inventory turnover ratio is 9.2 times. What is the level of Brenmar's inventories?

Gross Profit = Sales * Gross Profit Margin = $8,300,000 * 26% = $2,158,000

Cost of goods sold = Sales - Gross Profit = $8,300,000 - 2,158,000 = $6,142,000

Inventory = Cost of goods sold / Inventory Turnover Ratio = $6,142,000 / 9.2 = $667,608.70