Selected information taken from the accounting records of Rigor Company follows:
$\begin{array}{lr}\text{ Net accounts receivable at December }31,2013& \$800,000\\ \text{ Net accounts receivable at December 31, 2014 }& \$900,000\\ \text{ Accounts receivable turnover }& 7\text{ to }1\\ \text{ Inventories at December }31,2013& \$1,000,000\\ \text{ Inventories at December }31,2014& \$1,200,000\\ \text{ Inventory turnover }& 3\text{ to }1\end{array}$
Required:
a.What was Rigor's gross margin for 2014?
b.Suppose there are 360 business days in the year.What was the number of days' sales outstanding in average receivables and the number of days' sales outstanding in average inventories for 2014,respectively?

a.)$2,650,000.b.)Days' sales in average receivables = 51.4 days;Days' sales in average inventories = 120 days.
Feedback:a.)Gross margin equals net sales minus cost of goods sold.Net sales can be found by using the accounts receivable turnover ratio:
Accounts receivable turnover = Net sales ÷ Average receivables
7.0 = Net sales ÷ (($800,000 + $900,000)÷ 2).Net sales = $5,950,000.
Cost of goods sold can be found by using the inventory turnover ratio:
Inventory turnover = Cost of goods sold ÷ Average inventory
3.0 = Cost of goods sold ÷ (($1,000,000 + $1,200,000)÷ 2).Cost of goods sold = $3,300,000.Gross margin = $5,950,000 - $3,300,000 = $2,650,000.b.)Days' sales in average receivables = 360 ÷ 7.0 = 51.4 days;Days' sales in average inventories = 360 ÷ 3.0 = 120 days.