Problem - Trojan Trading (TT) imports exotic items from Europe and sells to the local specialty stores. TT pays on average $300 per unit when they buy from Europe, and receives on average $500 per unit when they sell to a local store. Each month, TT buys and sells 1,000 units. So Cost of Goods Sold is on average $300,000 per month and Revenue from Sales is on average $500,000 per month. TT counts their inventory each month. Average inventory is $600,000.
Assume 30 days a month. So for example 2 mo. = 60 days and 0.2 mo. = 6 days.
Note: If you haven't taken any accounting classes, inventory is valued at cost. In other words, TT has, on average, 600,000/300 = 2,000 units in inventory.
a) What is Flow Time for a typical item or "Days of Inventory?" In other words, how long does a typical item stay in TT's warehouse/store display, after it is bought from Europe and before it is sold to a local retail store? Your answer must be in days.
b) TT typically receives the local buyer's payment 45 days after the sales. What is the average accounts receivable outstanding in TT's book?
Note: In many B to B settings, customers (they are also companies) don't pay when sales occur. In this case, customers pay 45 days after the sales. Accounts receivable outstanding is the amount of sales that are not paid for yet. Therefore, your answer must be in dollars.