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(1)
Introduction:
Days sales uncollected ratio helps the creditors and investors to calculates the time in which company collects its account receivable.
To calculate:
Days’ sales uncollected.
Answer to Problem 8E
Days sales uncollected for 2015 = 49 days
Days sales uncollected for 2014 = 43 days
Explanation of Solution
Days sales uncollected for 2015
= 49 days
Days sales uncollected for 2014
= 43 days
Days sales uncollected are increasing from previous year which means that the time for collecting the
(2)
Introduction:
Accounts receivable turnover ratio calculates the number of times company converts its average account receivables in cash a particular year.
To calculate:
Accounts receivable turnover.
Answer to Problem 8E
Accounts receivable turnover ratio for 2014 = 9.44 times
Accounts receivable turnover ratio for 2015 = 8.86 times
Explanation of Solution
Average account receivable for 2014
= $56, 350
Average account receivable for 2015
= $76, 000
Accounts receivable turnover ratio for 2014
= 9.44 times
Accounts receivable turnover ratio for 2015
= 8.86 times A decrease in the accounts receivable ratio is not a good sign that means the company is dealing with neglecting clients. The company needs to work on improving its accounts receivable ratio.
(3)
Introduction:
Inventory turnover ratio measures how many times inventory is sold during a period.
To calculate:
Inventory turnover ratio.
Answer to Problem 8E
Inventory turnover ratio for 2014 = 5.06 times
Inventory turnover ratio for 2015 = 4.21 times
Explanation of Solution
| 2014 | 2015 | |
| COGS | $345, 500 | $411, 225 |
| Average inventory | $68, 250 | $97, 500 |
| Inventory turnover ratio | 5.06 times | 4.21 times |
A decrease in inventory turnover ratio means that the company is holding its inventory for a longer period which might have an adverse effect on company’s performance.
(4)
Introduction:
Days sales in inventory calculates the time period which company takes to convert inventory into sales.
To calculate:
Days sales in inventory.
Answer to Problem 8E
Days sales in inventory in 2014 = 72 days
Days sales in inventory in 2015 = 87 days
Explanation of Solution
| 2014 | 2015 | |
| Days sales in inventory | 72 days | 87 days |
The days sales in inventory is increasing from 2014 to 2015 which indicates that the company is holding its inventory for too long. This can be due to purchase of too much inventory or poor performance sales performance.
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Chapter 13 Solutions
Managerial Accounting
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