Question

Zane Corporation has an inventory conversion period of 69 days, an average collection period of 43 days, and a payables deferral period of 23 days. Assume 365 days in year for your calculations.

1. What is the length of the cash conversion cycle? Round your answer to two decimal places.
     days
2. 
   
3. If Zane's annual sales are $2,181,245 and all sales are on credit, what is the investment in accounts receivable? Do not round intermediate calculations. Round your answer to the nearest cent.
   $  
4. 
   
5. How many times per year does Zane turn over its inventory? Assume that the cost of goods sold is 75% of sales. Use sales in the numerator to calculate the turnover ratio. Do not round intermediate calculations. Round your answer to two decimal places.
     times

Answer 1

Answer a.

Cash conversion cycle = Average collection period + Inventory conversion period - Payable deferral period
Cash conversion cycle = 43 + 69 - 23
Cash conversion cycle = 89 days

Answer b.

Average collection period = 365 * Accounts receivable / Annual sales
43 = 365 * Accounts receivable / $2,181,245
Accounts receivable = $256,968.59

Answer c.

Cost of goods sold = 75% * Annual sales
Cost of goods sold = 75% * $2,181,245
Cost of goods sold = $1,635,933.75

Inventory conversion period = 365 / Inventory turnover
69 = 365 / Inventory turnover
Inventory turnover = 5.29 times