Question

In: Finance

Consider the following financial statement information for the Hop Corporation:   Item     Beginning   Ending   Inventory     $11,600   $12,600  ...

Consider the following financial statement information for the Hop Corporation:

  Item     Beginning   Ending

  Inventory     $11,600   $12,600  

  Accounts receivable   6,600     6,900  

  Accounts payable   8,800     9,200  

     Net sales   $96,000  

     Cost of goods sold   76,000  

Calculate the operating and cash cycles.

Solutions

Expert Solution

Average Collection Period

Average Collection Period = Average Accounts Receivables / Credit Sales per day

= [($6,600 + $6,900)/2] / [$96,000 365 Days]

= [$13,500 / 2] / [$96,000 365 Days]

= $6,750 / $263.01 per day

= 25.66 Days

Days sales in Inventory

Days sales in Inventory = Average Inventory / Cost of goods sold per day

= [($11,600 + $12,600)/2] / [$76,000 / 365 Days]

= [$24,200 / 2] / [$76,000 / 365 Days]

= $12,100 / $208.22 per day

= 58.11 Days

Accounts Payables Deferral Period

Accounts Payable Deferral Period = Average Accounts Payable / Cost of goods sold per day

= [($8,800 + $9,200] / [$76,000 / 365 Days]

= [$18,000 / 2] / [$76,000 / 365 Days]

= $9,000 / $208.22 per day

= 43.22 Days

Operating Cycle

Operating Cycle = Average Collection Period + Days sales in Inventory

= 25.66 Days + 58.11 Days

= 83.77 Days

Cash Cycle

Cash Cycle = Operating Cycle – Accounts Payables Deferral Period

= 83.77 Days – 43.22 Days

= 40.55 Days


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