Analysis of the Operating Cycle
Response to the following problem:
The following information was taken from the records of Dallen Company for the year 2010:
Sales $600,000
Beginning inventory $114,000
Ending inventory $87,000
Beginning accounts receivable $68000
Average collection period 44 days
Beginning accounts payable $36000
Ending accounts payable $42,000
Gross profit percentage 37%
1. Compute the number of days' sales in inventory.
2. Compute the ending balance in Accounts Receivable.
3. Compute the number of days' purchases in accounts payable.
4. How many days elapse, on average, between the time Dallen must pay its suppliers for inventory purchases and the time Dallen collects cash from its customers for the sale of that same purchased inventory?
5. Repeat the computations in (1), (2), (3), and (4) using the end-of-year balance sheet balances rather than the average balances.