Negus Enterprises has an inventory conversion period of 62 days, an average coll

Question

Negus Enterprises has an inventory conversion period of 62 days, an average collection period of 35 days, and a payables deferral period of 36 days. Assume that cost of goods sold is 80% of sales. Assume 365 days in year for your calculations. What is the length of the firm's cash conversion cycle? days If Negus's annual sales are $3,705,000 and all sales are on credit, what is the firm's investment in accounts receivable? Round your answer to the nearest dollar. $ How many times per year does Negus Enterprises turn over its inventory? Round your answer to two decimal places.

Explanation / Answer

Annual credit sales = 3,705,000

Average collection period is 35 days

No.of days in year is 365.

Investment in accounts receivable is annual credit sales × ( Average collection period /365) =355,274.

Cost of goods sold is 0.8× 3,705,000 = 2,964,000, divide by 365 to get 1 day value = 8120.55

Average inventory = Inventory conversion period × cost of good sold = 62×8120.55 = 503,474

Inventory turnover = Cost of goods sold per year / Average inventory = 2,964,000/503,474 = 5.88 times

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