Problem 12.16 Blackwell Automotive, Inc., reported the following financial infor
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Question
Problem 12.16 Blackwell Automotive, Inc., reported the following financial information for the last fiscal year. Blackwell Automotive, Inc. Liabilities and Equity Assets Cash and marketable sec. $23,015 Accounts payable and accruals $ 150,000 Accounts Receivable 159,000 Notes payable $ 21,115 Inventories 165,000 Total current assets 358,238 Total current liabilities 171,115 Sales and Costs Net sales Cost of goods sold 910,000 $546,000 Calculate the firm's cash conversion cycle and operating cycle. (Round intermediate calculations and final answers to 1 decimal place, e.g. 15.1.) Blackwell's cash conversion cycle is days and their operating cycle is daysExplanation / Answer
Accounts receivables = $159,000
Accounts payables = $150,000
Net sales = $910,000
Inventory = $165,000
Cost of goods sold = $546,000
Operating Cycle = Inventory Period + Accounts Receivable Period
Inventory Period = Inventory / Cost of goods sold * 365 = 165000/546000 * 365 = 110.3 days
Accounts Receivable Period=Accounts Receivable/Credit sales*365=159000/910000 * 365 = 63.7days
Operating Cycle = Inventory Period + Accounts Receivable Period
Operating Cycle = 110.3 + 63.7 = 174 days
Cash conversion cycle = Inventory Period + Accounts Receivable Period - Accounts Payable Period
Accounts Payable Period =Accounts Payable/Cost of goods sold*365=150000/546000*365=100.27day
Cash conversion cycle = 110.3 + 63.7 - 100.27 = 73.73 days