Suppose that Ken-Z Art Gallery has annual sales of $894,000, cost of goods sold
ID: 2654970 • Letter: S
Question
Suppose that Ken-Z Art Gallery has annual sales of $894,000, cost of goods sold of $584,000, average inventories of $170,000, average accounts receivable of $139,000, and an average accounts payable balance of $64,000.
Assuming that all of Ken-Z’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.)
Suppose that Ken-Z Art Gallery has annual sales of $894,000, cost of goods sold of $584,000, average inventories of $170,000, average accounts receivable of $139,000, and an average accounts payable balance of $64,000.
Explanation / Answer
CCC = DIO + DSO – DPO
DIO = Average inventory/COGS per day
DPO = Average AP/COGS per day
DSO = Average AR / Revenue per day
DIO = 170000/(584000/ 365) = 106.3 days
DSO = 139000/ (894000/ 365) = 56.75 days
DPO = 64000 / (584000/ 365) = 40 days
CCC = 106.3 + 56.75 - 40 = 123 days