Question

1 Pretty Lady Cosmetic Products has an average production process time of 40 days. Finished goods are kept on hand for an average of 15 days before they are sold. Accounts receivable are outstanding an average of 35 days, and the firm receives 40 days of credit on its purchases from suppliers.a.Estimate the average length of the firm's short-term operating cycle. How often would the cycle turn over in a year?b.Assume net sales of $1,200,000 and cost of goods sold of $900,000. Determine the average investment in accounts receivable, inventories, and accounts payable. What would be the net financing need considering only these three accounts?

Answer 1

Sales	1,200,000
Cost of goods sold	900,000
Days for inventory conversion	15
Inventory turnover ratio	24.33	[365/ days for inventory]
Investment in inventory	36986.30137	[COGS/ Inventory turnover ratio]
Sales	1,200,000
Days for accounts receivable	35
Accounts receivable turnover ratio	10.43	[365/ Days for accounts receivable]
Investment in accounts receivable	115068.4932	[Sales/ Accounts receivable turnover ratio]
Cost of goods sold	900,000
Days for accounts payable	40
Accounts Payable turnover ratio	9.13	[365/ days for accounts paybale]
Investment in accounts payable	98630.13699	[COGS/ Accounts payable turnover ratio]
Investment in inventory	36986.30137
Investment in accounts receivable	115068.4932
Investment in accounts payable	-98630.13699
Net financing needed	53424.65753