The finance department has been directed to reduce the cash-to-cash cycle time to 35.9 days. You...

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)

Expert Solution

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

ekkarill92 answered 2 years ago

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