Suppose that Ken-Z Art Gallery has annual sales of $902,000, cost of goods sold
ID: 2771353 • Letter: S
Question
Suppose that Ken-Z Art Gallery has annual sales of $902,000, cost of goods sold of $592,000, average inventories of $178,000, average accounts receivable of $111,000, and an average accounts payable balance of $55,000.
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 $902,000, cost of goods sold of $592,000, average inventories of $178,000, average accounts receivable of $111,000, and an average accounts payable balance of $55,000.
Explanation / Answer
Calculation of Cash conversion cycle:
Cash Conversion cycle = [(Inventory / Cost of Goods sold) + (Accounts Receivable / Net credit Sales) – (Accounts Payable / Cost of Goods sold) ] *365
= [(178000 / 592000) + (111000 / 902000 ) – (55000 /592000) ] *365
= ( 0.30068 + 0.12306 -0.09291 )*365
= 120.75 Days