Question

Consider the following financial statement information for the Mediate Corporation:

  

Item	Beginning		Ending
Inventory	$ 4,880		$ 6,310
Accounts receivable	2,963		3,831
Accounts payable	4,018		5,195
Credit sales		$ 50,484
Cost of goods sold		30,640

  

Required:

(a)	Calculate the operating cycles. (Do not round your intermediate calculations.)
	(Click to select)42.09days91.21days94.86days36.34days87.56days

(b)	Calculate the cash cycle. (Do not round your intermediate calculations.)

Answer 1

Average inventory = ( beginning inventory + ending inventory)/2

Average inventory = (4880+6310)/2

Average inventory = 5595

Average Receivables= ( beginning Receivables+ ending Receivables)/2

Average Receivables = (2963+3831)/2

Average Receivables = 3397

Average Payables= ( beginning Payables+ ending Payables)/2

Average Payables = (4018+5195)/2

Average Payables = 4606.5

Purchases = COGS + beginning inventory - ending inventory

Purchases = 30640+4880-6310

Purchases = 29210

Inventory turnover = COGS/inventory

Inventory turnover = 30640/5595

Inventory turnover = 5.48

days of inventory on hand = number of days in a year/inventory turnover

days of inventory on hand = 365/5.48

days of inventory on hand = 66.61

Receivables turnover = Credit sales/receivables

Receivables turnover = 50484/3397

Receivables turnover = 14.86

days of sales outstanding = number of days in a year/receivables turnover

days of sales outstanding = 365/14.86

days of sales outstanding = 24.56

Accounts payables turnover = purchases/payables

Accounts payables turnover = 29210/4606.5

Accounts payables turnover = 6.34

days of payables outstanding = number of days in a year/accounts payable turnover

days of payables outstanding = 365/6.34

days of payables outstanding = 57.57

a, Operating cycle = days of sales outstanding + days of inventory on hand

Operating cycle = 24.56+66.61

Operating cycle = 91.21

b. Cash conversion cycle = Operating cycle - days of payables outstanding

Cash cycle = 91.17-57.57

Cash cycle = 33.6