Flo's Flowers has accounts receivable of $4,511, inventory of $1,810, sales of $138,609, and cost of goods sold of $64,003. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit?
A) 11.88 days
B) 22.20 days
C) 16.23 days
D) 14.50 days
E) 18.67 days

Question

Quizplus · Accepted Answer

First, we need to calculate the average daily sales and average daily cost of goods sold.

Average Daily Sales = Annual Sales / 365 
= 138,609 / 365 
= $379.17

Average Daily Cost of Goods Sold = Annual Cost of Goods Sold / 365 
= 64,003 / 365 
= $175.62

Next, we can calculate the number of days to sell inventory:

Days to Sell Inventory = Inventory / Average Daily Cost of Goods Sold 
= 1,810 / 175.62 
= 10.32 days

Finally, we can calculate the number of days to collect payment on sales:

Days to Collect Payment = Accounts Receivable / Average Daily Sales 
= 4,511 / 379.17 
= 11.88 days

Therefore, the total number of days to sell inventory and collect payment on sales is:

Total Sales Cycle = Days to Sell Inventory + Days to Collect Payment 
= 10.32 days + 11.88 days 
= 22.20 days

So the best choice is B, with an explanation as above.

Flo's Flowers Has Accounts Receivable of $4,511, Inventory of $1,810