Chapter 16 onsider the case of Green Melon Electronics Company Giaen Melon Elect

Question

Chapter 16 onsider the case of Green Melon Electronics Company Giaen Melon Electronics Company is a mature firm that has a stable flow of business. The folowing data was taken m its financial statements last year: Annual sales Cost of goods sold Inventory Accounts receivable Accounts payable 10,500,000 $7,140,000 $3,200,000 $2,300,000 $2,600,000 Green Melon's CFO is interested in determining the length of time funds are tied up in working capital. Use the in the preceding table to complete the following table. (Note: Use 365 days as the length of a year in all calculations, and round all values to two decimal places.) Value Iriventory Conversion Period Average collection period Payables Deferral Period Cash conversion cycle conversion period and payables deferral period use the average daily CoGS in their denominators, Both the Inventory whereas the average collection period different inputs? uses average daily sales in its denominator. Why do these measu res use O Current assets should be divided by sales, but current sabilities should be divided by the CoGs O Inventory an d accounts payable are carried at cost on the balance sheet, whereas accounts receivable are recorded at the price at which goods are sold The management at Green Melon Electronics Company wants to continue its internal management. One of the finance members discussions related to its cash ce team members presents the following cose to his cohorts: Which of the following responses to the CFO's statemont is most accurate? Case in Discussion O The CFO is not taking into account the Hoppy Turtie Transporters's managemet plans to fenance ts amount of time the company has to pay ts suppliers Generally, there is a certain ength of time betweon the purchase of matoriws and lobor and the payment of MacBook A

Explanation / Answer

A Annual Cost of goods sold $7,140,000 B Inventory $3,200,000 C=A/B Inventory turnover 2.23125 times D=365/C Inventory conversion period 163.5854342 Days E Annual sales $10,500,000 F Accounts receivable $2,300,000 G=E/F Receivable turnover 4.565217391 times H=365/G Average collection period 79.95238095 Days I Cost of goods sold $7,140,000 J Accounts Payable $2,600,000 K=365/(I/J) Payable Deferral period 132.9131653 Days L=D+H-K Cash Conversion Cycle 110.6246499 days Inventory and Accounts payable are carried at cost in the balance sheet whereas accounts receivable are recorded at the price at which the goods are sold The CFO is not taking into account the amount of time the company has to pay to its supplier The CFO can reduce the estimated length of bank loan by the amount of time

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