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:

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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