Question

In: Finance

The finance department has been directed to reduce thecash-to-cash cycle time to 44.8 days.You...

The finance department has been directed to reduce the cash-to-cash cycle time to 44.8 days.

You are the warehouse manager and need to reduce the inventory to achieve that goal. Given the following information, what must your inventory level be?

Days in the period: 70

Sales: $14375000

AR: $4740000

AP: $6500000

Cost of Sales: 75.6

Solutions

Expert Solution

The amount is computed as shown below:

cost of sales is computed as follows:

= Sales x 75.6%

= $ 14375000 x 75.6%

= $ 10,867,500

cash to cash cycle time = days in the period x (Inventory / cost of sales + AR / Sales - AP / cost of sales)

44.8 = 70 x (Inventory / $ 10,867,500 + $ 4740000 / $ 14375000 - $ 6500000 / $ 14375000)

44.8 = 70 x (Inventory / $ 10,867,500 + 0.32973913 - 0.452173913)

0.64 = Inventory / $ 10,867,500 + 0.32973913 - 0.452173913

0.64 + 0.452173913 - 0.32973913 = Inventory / $ 10,867,500

Inventory = $ 8,285,760.004

jeff jeffy answered 2 years ago
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