Carroll & King Corporation has $5 million of inventory and $2 million of accounts receivable

Accounting Jan 19, 2021

Carroll & King Corporation has $5 million of inventory and $2 million of accounts receivable. Its average daily sales are $120,000. The company's payables deferral period (accounts payable divided by daily purchases) is 30 days. What is C&K's cash conversion cycle?
a. 24 b. 26 c. 27 d. 28 e. 30

Expert Solution

Calculation of Cash Conversion Cycle:

Cash Conversion Cycle (CCC) = Average collection period + Days sales outstanding - Payables deferral period

Here,

Average collection period = Accounts receivables / Average daily sales

= $2,000,000 / $120,000

= 16.67 Days

Days sales outstanding = Inventory / Average daily sales

= $5,000,000 / $120,000

= 41.67 Days

Payables deferral period = 30.00 Days

Cash Conversion Cycle (CCC) = 16.67 Days + 41.67 Days - 30.00 Days = 28.34 Days or 28 days

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote