Question

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.

Answer 1

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%

=3,457,635 *75%=2,593,226.25

Average inventory/2,593,226.25 *365=86 days (inventory conversion period)

average inventory * 365=2,593,226.25*86

Average inventory=611,006.732876

Inventory turover ratio=2,593,226.25/611,006.732876

=4.2441860451 times ie., 4.24 times