Question

# Zane Corporation has an inventory conversion period of 86 days, an average collection period of 33...

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%

=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

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