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A company has inventory balance of $22,467, accounts receivable of $8,842, and accounts payable of $13,504....

A company has inventory balance of $22,467, accounts receivable of $8,842, and accounts payable of $13,504. If the credit sales are $171,186 and cost of goods sold are $118,377, what is the company's cash (conversion) cycle in number of days? (Use ending balances and assume 365 days in a year.)

a) 41.64

b)40.60

c) 44.76

d) 42.68

e)43.72

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Homework Answers

Answer #1

inventory balance = $22,467

accounts receivable (AR)= $8,842

accounts payable(AP) = $13,504.

credit sales = $171,186

cost of goods sold = $118,377,

Cash Conversion Cycle

Cash Conversion Cycle = Days of Sales Outstanding + Days of Inventory Outstanding - Days of Payables Outstanding

Days of Sales Outstanding = [(Beginning AR + ending AR) / 2] / (Revenue / 365)

Days of Sales Outstanding = 8842 / (171186/365) = 18.8528 days

.

Days of Inventory Outstanding = [(Beginning inventory + ending inventory) / 2] / (COGS / 365)

Days of Inventory Outstanding = 22467 / (118377 / 365) = 69.2741 days

.

Days of Payables Outstanding = [(Beginning AP + ending AP) / 2] / (COGS / 365)

Days of Payables Outstanding = 13504 / (118377 / 365) = 41.6378 days

.

Cash Conversion Cycle = 18.8528 days + 69.2741 days - 41.6378 days = 46.4891 Days

.

Cash Conversion Cycle = 46.4891 days

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