The Winthrop Company is constructing a five-year plan. The firm’s ACP is currently 90 days, while its inventory turnover ratio is 3 X based on COGS. The company has forecast aggressive revenue growth along with efficiency improvements in manufacturing and credit and collections as follows. (Year 0 is the current year)
Year
0 1 2 3 4 5
Revenue ($000) $50.0 $57.5 $66.0 $76.0 $87.5 $100.0
Cost ratio 60% 59% 58% 57% 56% 55%
ACP (days) 90 70 60 50 45 40
Inventory turnover 3X 4X 5X 6X 6.5X 7X
For each planned year:
a. Calculate the COGS.
b. Calculate the A/R balance at year end.
c. Calculate the inventory balance at year end.
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