Houston Corporation has an inventory conversion period of 60

Houston Corporation has an inventory conversion period of 60 days (DI), a receivables collection period of 36 days (DSO), and a payable deferral period of 24 days (DPo). What is the length of the company\'s cash conversion cycle? . .If Houston\'s annual sales are $3,960,000 and all sales are on credit, what is the average balance in accounts receivable? .How many times per year does Houston turn over its inventory? (week S) . What would happen to Houston\'s cash conversion cycle if, on average, inventories could be turned over eight times a year? Webber Corporation carries an amount of receivables equal to $80,000, and its annual credit sales equal $2.4 million. What is the receivables collection period (DsO)? Cleary Enterprises owes its suppliers $180,000. The company\'s cost of goods sold averages $2.52 million. What is Cleary\'s payables deferral period (DPO)? Willowman Furniture Company has inventory that equals $48 million. if the inventory turnover for the company is 8, what is the inventory conversion period and cost of goods sold? .

Solution

Cash conversion cycle = days inventory outstanding + days sales outstanding - days payable outstanding

Cash conversion cycle = 60 + 36 - 24

Cash conversion cycle = 72

Length of company\'s cash conversion cyle is 72 days

days sales outstanding = 365 / Receivables turnover ratio

36 = 365 / Receivables turnover ratio

Receivables turnover ratio = 10.14

Receivables turnover ratio = Net credit sales / Average receivables

10.14 = 3,960,000 / Average receivables

Average receivables = $390,532.544

days inventory outstanding = 365 / Inventory turnover ratio

60 = 365 / Inventory turnover ratio

Inventory turnover ratio = 6.083

Houston truned over inventory 6.083 times

days inventory outstanding = 365 /8

days inventory outstanding = 45.625

Cash conversion cycle = 45.625 + 36 - 24

Cash conversion cycle = 57.625 days

Cash conversion cycle will decraese by 14.375

Receivables turnover ratio = Net credit sales / average receivables

Receivables turnover ratio = 2,400,000 / 80,000

Receivables turnover ratio = 30

Receivables collection period = 365 / 30

Receivables collection period = 12.17

Payables turn over ratio = COGS / payables

Payables turn over ratio = 2,520,000 / 180,000

Payables turn over ratio = 14

Payables deferral period = 365 / 14

Payables deferral period = 26.07

Inventory turover ratio = COGS / Average inventory

Average inventory = 8 * 48,000,000

Cost of goods sold = 384,000,000

Inventory convesrion period = 365 / 8

Inventory convesrion period = 45.625