Response to the following problem:
Anne Elizabeth Corporation is engaged in the business of making toys. A high percentage of its products are sold to consumers during November and December. Therefore, retailers need to have the toys in stock prior to November. The corporation produces on a relatively stable basis during the year in order to retain its skilled employees and to minimize its investment in plant and equipment. The seasonal nature of its business requires a substantial capacity to store inventory.
The gross receivables balance at April 30, 2010, was $75,000, and the inventory balance was $350,000 on this date. Sales for the year ended April 30, 2011, totaled $4,000,000, and the cost of goods sold totaled $1,800,000.
Anne Elizabeth Corporation uses a natural business year that ends on April 30. Inventory and accounts receivable data are given in the following table for the year ended April 30, 2011:
|
|
Month-End Balance
|
|
Month
|
Gross Receivables
|
Inventory
|
|
May 2010
|
$ $60,000
|
$525,000
|
|
June 2010
|
40,000
|
650,000
|
|
July 2010
|
50,000
|
775,000
|
|
August 2010
|
60,000
|
900,000
|
|
September 2010
|
200,000
|
975,000
|
|
October 2010
|
1100,000
|
700,000
|
|
November 2010
|
1.500,000
|
400,000
|
|
December 2010
|
1,1100,000
|
23,000
|
|
January 2011
|
1,000,000
|
100,000
|
|
February 2011
|
600.000
|
150,000
|
|
March 2011
|
200,000
|
273,000
|
|
April 2011
|
50,000
|
400,000
|
Required:
a. Using averages based on the year-end figures, compute the following:
1. Accounts receivable turnover in days
2. Accounts receivable turnover per year
3. Inventory turnover in days
4. Inventory turnover per year
b. Using averages based on monthly figures, compute the following:
1. Accounts receivable turnover in days
2. Accounts receivable turnover per year
3. Inventory turnover in days
4. Inventory turnover per year
c. Comment on the difference between the ratios computed in (a) and (b).
d. Compute the days' sales in receivables.
e. Compute the days' sales in inventory.
f. How realistic are the days' sales in receivables and the days' sales in inventory that were computed in (d) and (e)?