Suppose that Ken-Z Art Gallery has annual sales of $872,000, cost of goods sold
ID: 2739941 • Letter: S
Question
Suppose that Ken-Z Art Gallery has annual sales of $872,000, cost of goods sold of $562,000, average inventories of $148,000, average accounts receivable of $117,000, and an average accounts payable balance of $80,000.
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 $872,000, cost of goods sold of $562,000, average inventories of $148,000, average accounts receivable of $117,000, and an average accounts payable balance of $80,000.
Explanation / Answer
Cash cycle = days inventory outstanding+days sales outstanding-days payable outstanding
days inventory outstanding = average inventory/cost of goods sold = 148,000/562,000 *365 days = 96.12099 days
days sales outstanding = average accounts receivable/net credit sales = 117,000/872,000*365 = 48.97362 days
days payable outstanding = average accounts payable/cost of goods sold = 80,000/562,000*365 = 51.95729 days
Cash cycle = days inventory outstanding+days sales outstanding-days payable outstanding
= 96.12099+48.97362-51.95729
= 93.18 days