Negus Enterprises has an inventory conversion period of 71 days, an average coll
ID: 2658425 • Letter: N
Question
Negus Enterprises has an inventory conversion period of 71 days, an average collection period of 41 days, and a payables deferral period of 25 days. Assume that cost of goods sold is 80% of sales. Assume 365 days in year for your calculations.
What is the length of the firm's cash conversion cycle?
days
If Negus's annual sales are $3,188,175 and all sales are on credit, what is the firm's investment in accounts receivable? Round your answer to the nearest dollar. Do not round intermediate calculation.
$
How many times per year does Negus Enterprises turn over its inventory? Round your answer to two decimal places. Do not round intermediate calculation.
x
Explanation / Answer
Inventory Conversion Period = 71 days, Average Collection Period = 41 days, Payables Deferral Period = 25 days
Cash Conversion Cycle = Inventory Conversion Period + Average Collection Period - Payables Deferral Period = 71 + 41 - 25 = 87 days
Cost of Goods Sold is 80 % of Sales. Sales = $ 3188175
Cost of Goods Sold = 0.8 x 3188175 = $ 2550540
Let the investment in accounts receivable be $ K
Therefore, Accounts Receivable Turnover Ratio (ARTR) = 3188175 / K
Average Collection Period = 365 / ARTR = (365 x K) / 3188175
41 = (365 x K) / 3188175
K = $ 358123.77 or $ 358124 approximately.
Number of annual inventory turnovers = Inventory Turnover Ratio = 365 / Inventory Conversion Period = 365 / 71 = 5.14 times approximately.
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