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What is the length of the cash conversion cycle?
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Zocco Corporation has an inventory conversion period of 75 days, an average collection period of 38 days, and a payables deferral period of 30 days. a. What is the length of the cash conversion cycle? b. If Zocco’s annual sales are $3,421,875 and all sales are on credit, what is the investment in...

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  • October 24, 2019
  • 1
  • 2019/2020
  • Answers
  • Unknown

Subjects

  • 421
  • if zocco’s annual sales are 3
  • 875 and all sales are on credit
  • what is the investment in accounts receivable

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  • University
  • What is the length of the cash conversion cycle?
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Zocco Corporation has an inventory conversion period of 75
days, an average collection period of 38 days, and a payables deferral period of 30 days.
a. What is the length of the cash conversion cycle?
b. If Zocco’s annual sales are $3,421,875 and all sales are on credit, what is the investment
in accounts receivable?
c. How many times per year does Zocco turn over its inventory? Assume that cost of
goods sold is 75% of sales.

Solution:

a) Cash conversion cycle = Inventory conversion period + Collection period – Payment
period

= 75 + 38 – 30

= 83 days

b) Average sales per day = Annual sales/Number of days in a year

= $3,421,875/365

= $9,375

Investment in receivables= Average sales per day x Collection period

= $9,375 x 38

= $356,250

c) Inventory turnover ratio = Number of days in a year/ Cost of goods sold

= 365/75

= 4.87

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