d. What sugBestioS 2 P P15-2 Changing cash conversion cycle The Furniture Corpor
ID: 2802021 • Letter: D
Question
d. What sugBestioS 2 P P15-2 Changing cash conversion cycle The Furniture Corporation has an inventory of 7, an average collection period of 45 days, and an average payment period of Annual sales are $5 million, while the cost of goods sold is $1.8 million. a. What is The Furniture Corporation's operating cycle and cash conversion cycle! b. Calculate the dollar value of inventory that would appear on the balance shet at year end c. Suppose The Furniture Corporation found a way to improve its inventory turn over from 7 to 10. What is the effect of this improvement on the working capital of the firm?Explanation / Answer
a) Cash conversion cycle= DIO+DSO-DPO=365/7+45-30= 67.14 days
b) Dollar value of inventory= cost of goods sold/ inventory turnover ratio= 1800000/7 = $ 257,142.86
c) Dollar value of inventory= cost of goods sold/ inventory turnover ratio= 1800000/10 = $ 180,000.00
Increase in inventory turnover ratio from 7 to 10 will result in decrease in working capital by $ 77,142.86 (257142.86-180000)
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