Zane Corporation has an inventory conversion period of 86 days, an average collection period of 33 days, and a payables deferral period of 38 days. Assume 365 days in year for your calculations.
Length of the cash conversion cycle = 81 days
Zane's annual sales are $3,457,635 and all sales are on credit.
The investment in accounts receivable is $312,608.09
How many times per year does Zane turn over its inventory? Assume that the cost of goods sold is 75% of sales. Use sales in the numerator to calculate the turnover ratio. Do not round intermediate calculations. Round your answer to two decimal places.
Inventory turnover ratio=Cost of goods sold / average inventory
(Usually Cost of goods sold is used to find inventory turnover ratio.Sales is used to find Debtors turnover.)
Inventory conversion period =365/ inventory turnover ratio OR
Inventory conversion period=(Average inventory/Cost of goods sold)*365
Inventory conversion period =86 days
Cost of goods sold=Sales *75%
Average inventory/2,593,226.25 *365=86 days (inventory conversion period)
average inventory * 365=2,593,226.25*86
Inventory turover ratio=2,593,226.25/611,006.732876
=4.2441860451 times ie., 4.24 times
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