Jordan Air Inc. has average inventory of $1,000,000. Its estimated annual sales
ID: 2409980 • Letter: J
Question
Jordan Air Inc. has average inventory of $1,000,000. Its estimated annual sales are 15 million and the firm estimates its receivables collection period to be twice as long as its inventory conversion period. The firm pays its trade credit on time; its terms are net 30. The firm wants to decrease its cash conversion cycle by 10 days. It believes that it can reduce its average inventory to $900,000. Assume a 360-day year and that sales will not change. Cost of goods sold equal 80 percent of sales. By how much must the firm also reduce its accounts receivable to meet its goal of a 10-day reduction Ventura Corp. has annual sales of $50,735,000.00, an average inventory level of $15,012,000.00 and average accounts receivable of $10,008,000.00. The firm's cost of goods sold is 85% of sales. The company makes all purchases on credit and has always paid on the 30th day. However, it now plans to take full advantage of trade credit and to pay its suppliers on the 40th day. The CFO also believes that sales can be maintained at the existing level but inventory can be lowered by $1,950,000.00 and accounts receivable by $1,900,000.00. What will be the net change in the cash conversion cycle, assuming a 365day year
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360 Days Annual Sale 15 million Cost of Goods Sold 0.8 Average Inventory 1 million Inventory Conversion Period ICP 30 days 360/(15*0.8)/1 Days Sales Outstanding DSO 2*ICP DSO 30*2 #VALUE! DSO= Accounts Recivable/Sales Per day Accounts Receivable DSO*Sales Per Day 60*(15/360) 2.5 million New ICP 360 Days Annual Sale 15 million Cost of Goods Sold 0.8 Average Inventory 0.9 million Inventory Conversion Period ICP 27 days 360/(15*0.8)/0.9 New Change in ICP 27-30=-3 Days Total Change in CCC required 10 Days Reduction in DSO needed 10-3=7 Days New DSO Required 60-7=53 DSO= Accounts Recivable/Sales Per day Accounts Receivable DSO*Sales Per Day 53*(15/360) 2208333 million Reduction Required 2500000-2208333 291667Related Questions
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