Suppose that Ken-Z Art Gallery has annual sales of $894,000, cost of goods sold

Question

Suppose that Ken-Z Art Gallery has annual sales of $894,000, cost of goods sold of $584,000, average inventories of $170,000, average accounts receivable of $139,000, and an average accounts payable balance of $64,000.

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.)

Suppose that Ken-Z Art Gallery has annual sales of $894,000, cost of goods sold of $584,000, average inventories of $170,000, average accounts receivable of $139,000, and an average accounts payable balance of $64,000.

Explanation / Answer

CCC = DIO + DSO – DPO

DIO = Average inventory/COGS per day

DPO = Average AP/COGS per day

DSO = Average AR / Revenue per day

DIO = 170000/(584000/ 365) = 106.3 days
DSO = 139000/ (894000/ 365) = 56.75 days
DPO = 64000 / (584000/ 365) = 40 days

CCC = 106.3 + 56.75 - 40 = 123 days

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