Question

Santana Rey’s two departments, Computer Consulting Services and Computer Workstation Furniture Manufacturing, have each been profitable for Business Solutions. Santana has heard of the cash conversion cycle and wants to use it as another performance measure for the workstation manufacturing department. Data below are for the most recent two quarters. 1st Quarter 2nd Quarter Days’ sales in accounts receivable 22 days 24 days Days’ sales in inventory 28 days 27 days Days’ payable outstanding 34 days 31 days Required 1&2. Compute the cash conversion cycle for the first quarter and second quarter. 3. Did the cash conversion cycle increase or decrease from the first to the second quarter?

Answer 1

Ans.	*Calculation of Cash conversion cycle:
		1st Quarter	2nd Quarter
	Days sales in accounts receivable	22	24
	Add: Days sales in inventory	28	27
	Less: Days payable outstanding	-34	-31
	Cash Conversion Cycle	16	20
	*The cash conversion cycle is increasing from 1st quarter to the 2nd quarter.
	This increament is not good for company because an increase in cash cycle
	meals that the company is taking more time to collect cash or convert the
	current assets into cash.