Question

In: Finance

Zane Corporation has an inventory conversion period of 63 days, an average collection period of 33...

Zane Corporation has an inventory conversion period of 63 days, an average collection period of 33 days, and a payables deferral period of 37 days. Assume 365 days in year for your calculations.

What is the length of the cash conversion cycle? Round your answer to two decimal places.

__days

If Zane's annual sales are $2,679,070 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. $

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.

Expert Solution

a.

Cash conversion cycle

Cash conversion cycle is calculated by using following formula:

Cash conversion cycle = Inventory turnover day + Receivables day – Payables day

= 63 days + 33 days – 37 days

= 59 days

Hence, Cash conversion cycle is 59 days.

b.

Total sales = $2,679,070

Average collection period = 33 days

Investment in account receivables = ($2,679,070 / 365) × 33

= $7,339.92 × 33

= $242,217.29

Investment in account receivables is $242,217.29.

Inventory Turnover ratio = 365 / 63

= 5.79 times

5.79 times Zane turn over its inventory.

COst of goods sold = $2,679,070 × 75%

= $2,009,302.50.

Cost of goods sold is $2,009,302.50.

Value of inventory = Cost of goods sold / Inventory turnover

= $2,009,302.50 / 5.79

= $346,811.12.

Value of inventory is $346,811.12.

jeff jeffy answered 4 months ago

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