Question

Zane Corporation has an inventory conversion period of 74 days, an average collection period of 25 days, and a payables deferral period of 24 days. Assume 365 days in year for your calculations.

1. What is the length of the cash conversion cycle? Round your answer to two decimal places.
   days
2. 
   
3. If Zane's annual sales are $2,335,380 and all sales are on credit, what is the investment in accounts receivable? Round your answer to the nearest cent. Do not round intermediate calculations.
   $
4. 
   
5. 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. Round your answer to two decimal places. Do not round intermediate calculations.
   times

Answer 1

a

Operating cycle = days of sales outstanding + days of inventory on hand

Operating cycle = 25+74

Operating cycle = 99

Cash conversion cycle = Operating cycle - days of payables outstanding

Cash cycle = 99-24

Cash cycle = 75

b

days of sales outstanding = number of days in a year/receivables turnover

25 = 365/Receivables turnover

Receivables turnover = 14.6

Receivables turnover = Credit sales/receivables

14.6 = 2335380/Receivables

Receivables = 159957.53

c

days of inventory on hand = number of days in a year/inventory turnover

74 = 365/inventory turnover

inventory turnover = 4.93 times