Question

GBC Corp. has annual sales of RM100,000,000 with cost of goods sold of RM50,735,000 and maintains an average inventory level of RM15,012,000. The average accounts receivable balance outstanding is RM10,000,000. The company makes all purchases on credit and has always paid on the 30th day. The company is now going to take full advantage of trade credit and pay its suppliers on the 40th day. If sales can be maintained at existing levels but inventory can be lowered by RM1,946,000 and accounts receivable lowered by RM1,946,000, what will be the net change in the cash conversion cycle? (Assume there are 365 days in the year.)

Required:

1. Calculate the new and old inventory period (IP)

           

2. Calculate the new and old account receivable period (ARP) and

3. Determine the net change in the cash conversion cycle?

need answer for this asap pls dont refer to the previous ans and even hand written answer is fine

Answer 1

Answer.

When a company collects outstanding payments quickly, correctly forecasts inventory needs or pays its bills slowly, it shortens the CCC. A shorter CCC means the company is healthier. Additional money can then be used to make additional purchases or pay down outstanding debt.
Cash Conversion Cyclet fecc.) → DIO+DSO-DPO D10 Days Invertory Ande outstanding _DSO³ DIO=> Inventory (Ang) _*365 Days sales atatanding Cost of Goods sold DPO ² Days Payable cutatanding Do = Avg. Accounts Receivables 365 -Net Sales DPO ² Avg. Payables x365 Net credit sales A. X365 old Inventory outstanding Days D10) RM 1510127.000 RM 501735,000 To8 days Inventory ouetestanding Days - (D10 CRM: 157012,000 - RM 1946000 RM 50,7351.000 ay Days Newt 2365 => CS Scanned with CamScanner

Old Accounts Receivables. Pour le DSO): Dags sales outstanding CDs) RM 10000000_x365 RM 1000000 (36-5 Days Neies Accounts Receivable. Deyst Denys sales aukstanoting (DSO) - z (RM LOGOUD -RM 1946000) X365 RM100.00 000 te 29-397 days Cash Conversion cycle: ccc old DIOR DSO. — DPO Le losdays + 36-5days - NIL te 1945 days ) (New Hie 94 days +29.39 days Le 123 39 days tie Met chasepe. in cccl. (1445 - 123.3 dogs 2011 days it is good for company. Healthier Company CS Scanned with CamScanner

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