Question

Cash Conversion Cycle Zane Corporation has an inventory conversion period of 64 days, an average collection period of 28 days, and a payables deferral period of 41 days. What is the length of the cash conversion cycle? If Zane’s annual sales are $2,578,235 and all sales are on credit, what is the investment in accounts receivable? 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. a.51 days b.$197,782.41 ≈ $197,782 C.7.60×

Answer 1

Explanation:

The computation is shown below    

The length of the cash conversion cycle is  

= Inventory conversion period + average collection period - payable deferral period  

= 64 days + 28 days - 41 days  

= 51 days

Now the investment in account receivable is  

= $2,578,235 ÷ 365 ÷ 28 days  

= $197,782.411

And, the inventory turnover ratio is      

Inventory turnover ratio = Sales ÷ inventory  

where,

Sales = $2,578,235

And, the inventory is

75 = Inventory ÷  [(0.75 × $2,578,235) ÷ 365]

So, the inventory is $397,330.736

Now the inventory turnover ratio is

= $257,8235 ÷ $397,330.736

= 6.488 times