Answer:
Explanation:
Credit sales = 75% * $9.2 million =$6.9m
(a) Average collection period = (Accounts receivables/Credit sales) * 365 days
= (562,500/6,900,000) * 365
=29.76 days
≅ 30 days
(b) New level of accounts receivables after reducing collection period to 19 days
= (19/365 ) * 6,900,000
= $359,178
(c) Gross profit = 30.4% * $9.2 million
= $2,796,800
Cost of Sales = $ 9,200,000- $2,796,800
= $6,403,200
Inventory Turnover ratio = Cost of goods sold/Average stock
Hence, Inventories level (i.e Average stock) = 6,403,200/9.5
=$674,021