A company has total annual sales (all credit) of $400,000 and a gross profit margin of 20 percent. Its current assets are $80,000; current liabilities, $60,000; inventories, $30,000; and cash, $10,000.
a. How much average inventory should be carried if management wants the inventory turnover to be 4?
b. How rapidly (in how many days) must accounts receivable be collected if management wants to have an average of $50,000 invested in receivables? (Assume a 360-day year.)