In: Accounting
The finance department has been directed to reduce the cash-to-cash cycle time to 35.9 days.
You are the accounts receivable manager and need to reduce the AR balance to achieve that goal. Given the following information, what must your AR balance be?
Days in the period: 45
Sales: $15500000
Inventory: $2500000
AP: $5100000
Cost of Sales: 67.6
(Your answer should be in whole dollars)
Answer: AR Balance: $16,240,555.56
Calculation:
Sales | $ 15,500,000 |
Cost of sales % | 67.60% |
Cost of sales | $ 10,478,000 |
Cash to cash cycle = days*[ (inventory/cost of sales) + (AR/Sales) + (AP/Cost of sales) ] = 45[ ($ 2,500,000/$10,478,000) + (AR/$15,500,000) - ($ 5,100,000/$10,478,000) ] = 45[ 0.24 + AR/$15,500,000 - 0.49 ]
35.9 = 10.8 + 45(AR/$ 15,500,000) - 22.05
AR = $16,240,555.56