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In: Finance

Suppose that Ken-Z Art Gallery has annual sales of $898,000, cost of goods sold of $588,000,...

Suppose that Ken-Z Art Gallery has annual sales of $898,000, cost of goods sold of $588,000, average inventories of $174,000, average accounts receivable of $107,000, and an average accounts payable balance of $53,000. Assuming that all of Ken-Z’s sales are on credit, what will be the firm’s cash cycle? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.) Cash cycle days

Solutions

Expert Solution

Cash Conversion Cycle is the duration of time.This time starts with buying of Raw Materials, Selling and collection of sales and paying the liabilities of goods purchased.
Cash Cycle days = DIO+DSO-DPO Where,
=      108.01 +                 43.49 -                 32.90 DIO Days Inventory Outstanding
=      118.60 Days DSO Days sales outstanding
DPO Days Payable Outstanding
Working:
# 1
Inventory turnover ratio = Cost of goods sold/Average Inventory
= $       5,88,000 / $       1,74,000
=                    3.38
# 2 DIO = Days in a year/Inventory turnover ratio
= 365 /                    3.38
=               108.01 Days
# 3 Accounts receiable turnover = Annual credit sales /Average Accounts Receivable
= $       8,98,000 /           1,07,000
=                    8.39
# 4 DSO = Days in a year/Accounts receivable turnover
= 365 /                    8.39
=                 43.49 Days
# 5 Payable turnover = Cost of goods sold/Average accounts payable
= $       5,88,000 / $           53,000
=                 11.09
# 6 Days Payable outstanding = Days in a year/Accounts payable turnover
= 365 /                 11.09
=                 32.90 Days

jeff jeffy answered 1 year ago
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