Suppose that Ken-Z Art Gallery has annual sales of $902,000, cost of goods sold

Question

Suppose that Ken-Z Art Gallery has annual sales of $902,000, cost of goods sold of $592,000, average inventories of $178,000, average accounts receivable of $111,000, and an average accounts payable balance of $55,000.

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 $902,000, cost of goods sold of $592,000, average inventories of $178,000, average accounts receivable of $111,000, and an average accounts payable balance of $55,000.

Explanation / Answer

Calculation of Cash conversion cycle:

Cash Conversion cycle = [(Inventory / Cost of Goods sold) + (Accounts Receivable / Net credit Sales) – (Accounts Payable / Cost of Goods sold) ] *365

= [(178000 / 592000) + (111000 / 902000 ) – (55000 /592000) ] *365

= ( 0.30068 + 0.12306 -0.09291 )*365

= 120.75 Days

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