You have collected the following information for the Jake?s Place. Item Beginnin
ID: 2642638 • Letter: Y
Question
You have collected the following information for the Jake?s Place. Item Beginning Ending Inventory $5,000 $7,000 Accts. Receivable 1,600 2,400 Accts. Payable 2,700 4,800 Credit sales for the year just ended were $50,000, and cost of goods sold was $30,000. a. How long does it take for Jake?s Place to collect on its receivables? How long does merchandise stay around before it is sold? b. How long does it take Jake's Place to pay its bills? c. What is Jake?s Place operating cycle? d. What is Jake?s Place cash cycle?Explanation / Answer
Answer a. Debtor(Accounts Receivable) Days=Trade Debtors/SalesX365
=2,400/50,000X365
=175.2 Days
Hence it will take 175.2 days for Jake's place to collect on its receivables.
Now, 2nd part is Days sales of inventory(DSI) for which formula is DSI=Inventory/Cost of SalesX365
=7,000/30,000X365
=85.17 Days
Hence, merchandise stay around 85.17 days before it is sold.
Answer b. Here formula is Creditors (Accounts payable) Days= Trade Creditors/Cost of salesX365
=4,800/30,000X365
=58.4 Days
Hence, it will take around 58.4 days for Jake's Place to pay its bills.
Answer C.
Operating Cycle = Days' Sales of Inventory + Days Sales Outstanding
Days sales of inventory equals the average number of days in which a company sells its inventory. Days sales outstanding on the other hand, is the period in which receivables are realized in cash.
An alternate expanded formula for operating income is as follows:
Operating Cycle= 365/PurchasesXAverage Inventories+ 365/Credit SalesXAverage Accounts Receivable
Where , Average Inventories= (Opening inventory+closing Inventory)/2
=(5,000+7,000)/2
=12,000/2 = 6,000
And , where Average accounts receivable =(Opening accts. receivable+Closing accts. receivable)/2
=(1,600+2,400)/2
=2,000
Now, Operating cycle =365/30,000X6,000 +365/50,000X2,000
=73 + 14.6
=87.6 Days
Answer d: Cash conversion cycle or cash cycle is the time it takes a company to convert its resource inputs into cash. It measures how effectively a company is managing its working capital.
Formula
Where DSO is days sales outstanding, DIO is days inventory outstanding and DPO is days payables outstanding.
It can also be calculated if we already know the operating cycle:
Therefore, CCC= 87.6-58.4
=29.2 Days is Jake's Place Cash Cycle.
Cash Conversion Cycle = DSO + DIO ? DPORelated Questions
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