2 Folkswagon Co auto parts manufacturer in Beijing has the f

2. Folkswagon Co. auto parts manufacturer in Beijing has the following report from the accounting department. Answer the following questions using the data provided. Sales over the past 120 days $3,600,000 Accounts Receivable Total Value of Inventory Cost of Sales (%) Accounts Payable $200,000 30 $600,000 $420,000 a. What is the average daily sales (S) for Folkswagon Co.? b. Calculate the cash-to-cash cycle time (ccCT) for Folkswagon Co. c. What would you suggest Folkswagon Co., in order to improve its CCCT measure? Be specific by suggesting increasing or decreasing any of its ARd, Id, APd measures.

Solution

2.

A.

Average daily sales = volume of sales in the period / no. of days in the period

Average daily sales = 3600000/120 = $30000

B.

Days sales of inventory = (average inventory/cost of goods sold)*365

Days sales of inventory = (600000/(.3*3600000))*365 = 202.78 days

Days sales outstanding = (Account receivables /total revenue)*365

Days sales outstanding = (200000/3600000)*365 = 20.28 days

Days payable outstanding = (account payables/ cost of goods sold)*365

Days payable outstanding = (420000/(.3*3600000))*365 = 141.44 days

Cash to cash cycle time = Days sales of inventory + Days sales outstanding - Days payable outstanding

Cash to cash cycle time = 202.78 + 20.28 – 141.44

Cash to cash cycle time = 81.62 days

C.

To improve cash to cash cycle time,

The firm should decrease:

The firm should increase:

With decrease in the day of sales as well as the inventory will reduce the days when the cash is trapped. Further, issuing the account payable amount in more number of days, will remain the cash with the firm. So, above modifications will reduce the cash to cash cycle time.