Problem: X company has total annual sales (all credit) of $400,000 and a gross profit margin of 20%. Its current assets are $80,000; current liabilities $60,000; inventories $30,000; cash $10,000.
a) How much average inventory should be carried if management wants the inventory turnover to 4?
b) How rapidly (in how many days) must accounts receivables be collected if management wants to have an average of $50,000 invested in receivables? (Assume a 360 day year).
Please provide formulas.