Given the following information about a fictional company for 2010, answer the q
ID: 2664762 • Letter: G
Question
Given the following information about a fictional company for 2010, answer the questions that follow.Annual Sales $7,158,233
Cost of Goods Sold $4,234,872
Payables Deferral Period 19 days
Average Collection Period 26 days
Inventory Conversion Period 42 days
A What is the length of this company's cash conversion cycle?
B How many times per year does this company turn over inventory?
C What is the firm's investment in accounts receivable, assuming that all sales are on credit?
D What is the firm's investment in inventory?
Explanation / Answer
1.Cash conversion cycle = Average Collection Period +Inventory Conversion Period - Payables Deferral Period Cash conversion cycle = 26 + 42 - 19 = 49 days 2. Inventoty conversion period = Average Inventory / Cost of good sold * 365 42 =( x/$4,234,872) * 365 Average Inventory = $487,300.34 Inventory Turnover = COGS/Av.Inventory = $4,234,872/487,300.34 = 8.7 times 3.Average Collection Period = Av.Accounts Receivable/cr.sales * 365 26 = (x/$7,158,233) *365 Accounts Receivales = $19,611.60 4.Inventoty conversion period = Average Inventory / Cost of good sold * 365 42 =( x/$4,234,872) * 365 Inventory = $487,300.34
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