Problem 15-4 Cash conversion cycle Zocco Corporation has an inventory conversion
ID: 2636554 • Letter: P
Question
Problem 15-4
Cash conversion cycle
Zocco Corporation has an inventory conversion period of 57 days, an average collection period of 45 days, and a payables deferral period of 24 days. Assume 365 days in year for your calculations.
What is the length of the cash conversion cycle? Round your answer to two decimal places.
days
If Zocco's annual sales are $3,437,245 and all sales are on credit, what is the investment in accounts receivable? Round your answer to the nearest cent.
$
How many times per year does Zocco turn over its inventory? Assume that cost of goods sold is 75% of sales. Round your answer to two decimal places.
times
Explanation / Answer
cash conversion cycle=57days + 45 days - 24 days
=78 days
Average collection period = Accounts receivable / Total credit sales * 365
45=Accounts receivable/ $3,437,245 *365
Accounts receivable= $423,770 (approx)
COGS=0.75 * $3,437,245 = $2,477,933
Inventory conversion period = inventory /COGS *365
57 days = inventory/ $2,477,933 * 365
Therefore inventory =$386,964.87
Inventory turnover= COGS/inventory
=$2,477,933/$386,964.87
=6.40 times