Assignment 16- Supply Chains and Working Capital Management Due Today at 1 1 :59
ID: 2795014 • Letter: A
Question
Assignment 16- Supply Chains and Working Capital Management Due Today at 1 1 :59 PM CST Cash management is a very important function of managers. Companies need to manage their operations in a way that they can sustain growth and yet not run out of cash Consider the case of the Extensive Enterprise Corporation Extensive Enterprise Corporation has forecasted sales of $24,000,000 for next year and expects its cost of goods sold (COGS) to remain at 60% of sales. Currently, the firm holds $3,100,000 in inventories, $1,900,000 in accounts receivable, and $2,700,000 in accounts payable. Approximately how long does it take Extensive Enterprise to convert its raw materials to its finished products and then to sell those goods? (Note: In all calculations, assume that there are 365 days in a year.) O 62.86 days O 58.94 days O 78.58 days 55.01 days On average, it takes from the time a sale is made until the time cash is collected from customers. Extensive Enterprise relies on customer credit when it buys raw materials from its suppliers. On average, it takes after the firm purchases materials before it sends cash to its suppliers What is the length of Extensive Enterprise's cash conversion cycle (CCC)? 42.94 daysExplanation / Answer
1) 78.58 days ,
Days to convert raw material to its finished products and then to sell goods (days inventory outstanding) = Ending inventory / cost of goods sold * 365 days
= $3100000 / ($24000000 * 60%) * 365
= $3100000 / $14400000 * 365
= 78.58 days
2) days sales or receivable outstanding = Accounts receivable / sales * 365 days
= $1900000 / $24000000 * 365
= 28.90 days (rounded from 28.895days)
3) days payable outstanding = Accounts payable/ cost of goods sold * 365
=$2700000 / ($24000000 * 60%) * 365
= $2700000 / $14400000 * 365
= 68.44 days
4) Cash conversion cycle = days inventory outstanding + days sales or receivable outstanding - days payable outstanding
= 78.58 days + 28.90 days - 68.44 days
= 39.04 days