Houston Corporation has an inventory conversion period of 60 days (DI), a receiv
ID: 2822872 • Letter: H
Question
Houston Corporation has an inventory conversion period of 60 days (DI), a receivables collection period of 36 days (DSO), and a payable deferral period of 24 days (DPo). What is the length of the company's cash conversion cycle? . .If Houston's annual sales are $3,960,000 and all sales are on credit, what is the average balance in accounts receivable? .How many times per year does Houston turn over its inventory? (week S) . What would happen to Houston's cash conversion cycle if, on average, inventories could be turned over eight times a year? Webber Corporation carries an amount of receivables equal to $80,000, and its annual credit sales equal $2.4 million. What is the receivables collection period (DsO)? Cleary Enterprises owes its suppliers $180,000. The company's cost of goods sold averages $2.52 million. What is Cleary's payables deferral period (DPO)? Willowman Furniture Company has inventory that equals $48 million. if the inventory turnover for the company is 8, what is the inventory conversion period and cost of goods sold? .Explanation / Answer
Cash conversion cycle = days inventory outstanding + days sales outstanding - days payable outstanding
Cash conversion cycle = 60 + 36 - 24
Cash conversion cycle = 72
Length of company's cash conversion cyle is 72 days
days sales outstanding = 365 / Receivables turnover ratio
36 = 365 / Receivables turnover ratio
Receivables turnover ratio = 10.14
Receivables turnover ratio = Net credit sales / Average receivables
10.14 = 3,960,000 / Average receivables
Average receivables = $390,532.544
days inventory outstanding = 365 / Inventory turnover ratio
60 = 365 / Inventory turnover ratio
Inventory turnover ratio = 6.083
Houston truned over inventory 6.083 times
days inventory outstanding = 365 /8
days inventory outstanding = 45.625
Cash conversion cycle = 45.625 + 36 - 24
Cash conversion cycle = 57.625 days
Cash conversion cycle will decraese by 14.375
Receivables turnover ratio = Net credit sales / average receivables
Receivables turnover ratio = 2,400,000 / 80,000
Receivables turnover ratio = 30
Receivables collection period = 365 / 30
Receivables collection period = 12.17
Payables turn over ratio = COGS / payables
Payables turn over ratio = 2,520,000 / 180,000
Payables turn over ratio = 14
Payables deferral period = 365 / 14
Payables deferral period = 26.07
Inventory turover ratio = COGS / Average inventory
Average inventory = 8 * 48,000,000
Cost of goods sold = 384,000,000
Inventory convesrion period = 365 / 8
Inventory convesrion period = 45.625
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