Kanwai fans produces 25,000 fans per day at a cost of $7.50 each (material and l

Question

Kanwai fans produces 25,000 fans per day at a cost of $7.50 each (material and labor). It takes the firm 12 days to convert raw materials into a fan and sell ir. Kanwai allows it's customers 30 days in which to pay for the fans they purchase, and the firm generally pays it's suppliers in 20 days.

a. what is the length of kanwais cash conversion cycle?

b. If kanwai always produces and sells 25,000 fans per day, what amount of working capital must it finance?

c. By what amount can Kanwai's reduce it's working capital financing needs if it was able to stretch its payables deferral period to 25 days?

Explanation / Answer

a. what is the length of kanwais cash conversion cycle?

CCC= DIO+ DSO+ DPO
Where:
DIO represents days inventory outstanding

DSO represents days sales outstanding

DPO represents days payable outstanding

=62 days answer

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