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P 6-16 Anne Elizabeth Corporation is engaged in the business of making toys. A high percentage of its products are sold to consumers during November

P 6-16 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 dur- ing the year in order to retain its skilled employees and to minimize its investment in plant and equip- ment. The seasonal nature of its business requires a substantial capacity to store inventory.

The gross receivables balance at April 30, 2008, was $75,000, and the inventory balance was $350,000 on this date. Sales for the year ended April 30, 2009, 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, 2009:

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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

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

Comment on the difference between the ratios computed in (a) and (b).

Compute the days sales in receivables.

Compute the days sales in inventory.

How realistic are the days sales in receivables and the days sales in inventory that were com- puted in (d) and (e)?

Month-End Balance Month Gross Receivables Inventory May 2008 June 2008 July 2008 August 2008 September 2008 October 2008 November 2008 December 2008 January 2009 February 2009 March 2009 April 2009 S 60,000 40,000 50,000 60,000 200,000 800,000 1,500,000 1,800,000 1,000,000 600,000 200,000 50,000 $325.00 650,000 775,000 900,000 975,000 700,000 400,000 25,000 100,000 150,000 275,000 400,000

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