CASH CONVERSION CYCLE Zocco Corporation has an inventory conversion period of 75 days an average

QUESTION

CASH CONVERSION CYCLE 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 Zoccos 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?
Solution: a. Cash conversion cycle = inventory conversion period + average collection period payables deferral period = 75 + 38 30 = 83 Days b. Average collection period = 365/Debtors turnover ratio Debtors turnover ratio = Sales/accounts receivables Putting the values in the equation, we get: 38 = 365/1* receivables/3,421,875 Hence, receivables = 38*3421875/365 = $356,250

nvestment in receivables = $356,250 c. Inventory conversion period = 365/Inventory turnover ratio Hence, 75 Days = 365/Inventory turnover ratio Inventory turnover ratio = 365/75 = 4.9 times Zocco turns inventory 4.9 i.e. 5 times (approx) during the year.

ANSWER:

CLICK REQUEST FOR  AN EXPERT SOLUTION