Question

Question 4: During 2016, XYZ Ltd. had the inventory period of 25 days, the accounts receivable period of 30 days and the accounts payable period of 20 days. Assume that XYZ Ltd. has the credit sales of $365 million in 2016 and the cost of goods sold of $255.5million. It had beginning of the year inventories, receivables and payables of $15 million, $28 million and $12 million respectively: i) Calculate the operating cycle and the cash conversion cycle of XYZ Ltd. in 2016? ii) Calculate the average inventories, the average receivables and the average payables during 2016? iii) Calculate the end of the year levels of inventories, receivables and payables in 2016?

Answer 1

the operating cycle= receivables days+inventory days

=30+25

=55 days

Inventory days=25

(365/cost of sales)*average inventory=25

(365/255.5)*average inventory=25

average inventory=(25*255.5)/365=17.50 million

receivable days=30

(365/ sales)*average receivables=30

(365/365)*average receivables=30

average receivables=(30*365)/365=30.00 million

payable days=20

(365/cost of sales)*average payable=20

(365/255.5)*average payable=20

average payable=(20*255.5)/365=14.00 million

end of the year levels of inventories=(17.50*2)-15=20 MILLION

end of the year levels of receivables=(30.00*2)-28=32 MILLION

end of the year levels of payable=(14.00*2)-12=16 MILLION

the above is answer..