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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
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
Expert Solution
The firm is incurring an economic loss because if average total cost is higher then price, it means total cost are greater than total revenue and difference between total revenue and total cost is the economic losses firm is facing. So, the correct option is A " The firm is incurring an economic loss".
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