The Monster Truck operates several specialty vehicles that provide hot food and beverages for firms that have workers employed in outlying regions. The company has annual sales of $627,200. Cost of goods sold average 38 percent of sales and the profit margin is 5.1 percent. The average accounts receivable balance is $35,300. On average, how long does it take the company to collect payment for its services

The answer is 20.55 days

Explanation:

Solution

Given that:

Annual sales = $627,200

Average accounts receivable = $35,300

Now

The accounts turnover ratio (receivable) = Sales/Average accounts receivable

Accounts receivable turnover ratio = $627,200/$35.300

=17.76 times

Thus

Number of days payment receives = 365 / Accounts receivable turnover ratio = 365 days/17.76 times

=20.55 days

Therefore The company takes 20.55 days to get payment for its services