Suppose that LilyMac Photography has annual sales of $237,000, cost of goods sol
ID: 1171987 • Letter: S
Question
Suppose that LilyMac Photography has annual sales of $237,000, cost of goods sold of $172,000, average inventories of $5,200, average accounts receivable of $26,400, and an average accounts payable balance of $7,700.
Assuming that all of LilyMac’s sales are on credit, what will be the firm’s cash cycle? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)
Cash Cycle Days _________
Suppose that LilyMac Photography has annual sales of $237,000, cost of goods sold of $172,000, average inventories of $5,200, average accounts receivable of $26,400, and an average accounts payable balance of $7,700.
Explanation / Answer
Cash Cycle days 35.35 Days Working: a. Inventory Turnover ratio = Cost of goods sold/Average Inventory = $ 1,72,000 / $ 5,200 = 33.08 b. Days inventory outstanding = 365 / 33.08 = 11.03 c. Receivable Turnover ratio = Credit Sales / Average Accounts Receivable = $ 2,37,000 / $ 26,400 = 8.98 d. Days Sales outstanding = 365 / 8.98 40.66 e. Payable turnover ratio = Costs of goods sold/Average Accounts payable = $ 1,72,000 / $ 7,700 = 22.34 f. Days Payable outstanding = 365 / 22.34 16.34 g. Cash cycle = Days Inventory outstanding + Days sales outstanding - Days Payable outstanding = 11.03 + 40.66 - 16.34 = 35.35