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JulsSmile [24]
4 years ago
12

Rikan inc.'s credit sales for the year 2016 are $5,000,000, and its gross profit is $1,500,000. the company’s average inventorie

s are $595,000. its average accounts receivable is $750,000 and average accounts payable is $640,000. from this information, calculate the company’s cash cycle. (round the answer to one decimal.)​
Business
1 answer:
Anestetic [448]4 years ago
7 0
<span>Given:
</span><span>credit sales for the year 2016 are $5,000,000
gross profit is $1,500,000
average inventories are $595,000
average accounts receivable is $750,000
average accounts payable is $640,000.
</span>
Formula:
Cash Conversion Cycle = DSO + DIO – DPO

<span>DSO: </span>days sales outstanding<span> = Average Accounts Receivable × 365 ÷ Credit Sales</span>
<span>DIO: </span>days inventory outstanding<span> = Average Inventories × 365 ÷ Cost of Goods Sold</span>
<span>DPO: </span>days payables outstanding<span> = Average Accounts Payable × 365 ÷ Cost of Goods Sold
</span>
DSO = (750,000 * 365) / 5,000,000 = 54.75 
DIO = (595,000 * 365) / 3,500,000 = 62.05
DPO = (640,000 * 365) / 3,500,000 = 66.74

Cost of Goods Sold = Sales - Gross Profit = 5,000,000 - 1,500,000 = 3,500,000

<span>Cash Conversion Cycle = DSO + DIO – DPO
</span>CCC = 54.75 + 62.05 - 66.74
CCC = 50.06

<span>The company’s cash cycle is 50.06 days.</span>
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