Question

vi А B С D E F G H Your consulting firm was recently hired to improve the performance of Rumpke, which has been experiencing cash shortages due to its high growth rate. You want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle? 1 4 Average inventory Annual sales Annual cost of goods sold Average accounts receivable Average accounts payable $75,000 $500,000 $360,000 $160,000 $25,000 5 5 7 3 9 ACP/DSO ICP PDP CCC 0 1 2 Problem 6 Problem 7 Problem 8 9 10 Problem 11 Problem 12 Problem 13 Problem 14 Prol eady Tune here to

Answer 1

- Days Sales Outstanding(DSO) = (Average Accounts Receivables/Revenue)*365

= ($160,000/$500,000)*365

= 116.80 days

- Inventory Conversion Period(ICP) = (Average Inventory/Annual COGS)*365 days

= ($75,000/$360,000)*365

= 76.04 days

- Days Payable Period(PDP)= (Average Accounts Payable/COGS)*365

= ($25,000/$360,000)*365

= 25.35 days

Cash Conversion Cycle = DSO + ICP - PDP

Cash Conversion Cycle = 116.80 + 76.04 - 25.35

= 167.49 days

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