The Asmo Corporation has an inventory conversion period of 75days, an average co
ID: 2662143 • Letter: T
Question
The Asmo Corporation has an inventory conversion period of 75days, an average collection period 38 days, and a payables deferralperiod of 30 days. a. What is the length of the cash conversion cycle? b. If Asmo's annual sales are $3,421,875 and all sales are oncredit, what is the investment in accounts receivable? c. How many times per year does Asmo turn over itsinventory? The Asmo Corporation has an inventory conversion period of 75days, an average collection period 38 days, and a payables deferralperiod of 30 days. a. What is the length of the cash conversion cycle? b. If Asmo's annual sales are $3,421,875 and all sales are oncredit, what is the investment in accounts receivable? c. How many times per year does Asmo turn over itsinventory?Explanation / Answer
(a) Cash Conversion Cycle = [Operating Cycle– Account’s Payable Period]
Operating Cycle= [Inventory Period + Account’s Receivable Period]
Operating Cycle= 75 days + 38 days
Operating Cycle = 113 days
Cash ConversionCycle = [113 days – 30 days]
CashConversion Cycle = 83 days
(b) Annual Sales = $3,421,875
Investment inAccounts Receivables = [$3,421,875 / 38 days]
Investment inAccounts Receivables = $90,049.34
(c) Inventory Period = [365 days / InventoryTurnover]
75 days =[365 days / Inventory Turnover]
InventoryTurnover = [365 days / 75 days]
InventoryTurnover = 4.87times
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