Question

Clay’s Forging at Canal Fulton wants to determine its inventory management performance during its past year of operations. Refer to the following information provided by the company: Inventory on hand at beginning of the year = $273,000 Inventory on hand at end of the year = $290,000 Annual cost of goods sold = $1,790,000 Average annual accounts receivable = $45,500 Annual credit sales = $102,000 Beginning-of-year accounts payable = $227,500 End-of-year accounts payable = $316,200 Total annual purchases = $1,575,000 Based on the above information, calculate the cash-to-cash cycle time (CCCT).

Answer 1

days on inventory 57 + collection cycle 163- payment cycle 63

CCCT = 157 days

Step-by-step explanation:

The cash-to-cash measures the times from the company paid his good from the time it collect from the customer:

days inventory outstanding + collection cycle - payment cycle

days inventory outstanding:

`(365)/(Inventory TO) = $Days on Inventory`

Where:

`(COGS)/(Average Inventory) = $Inventory Turnover`

​where:

`$$Average Inventory=(Beginning Inventory + Ending Inventory)/2`

COGS $ 1,790,000

Beginning Inventory: $ 273,000

Ending Inventory: $ 290,000

Average Inventory: $ 281,500

`(1790000)/(281500) = $Inventory Turnover`

Inventory TO 6.358792185

`(365)/(6.35879218472469) = $Days on Inventory`

Days on Inventory 57

Collection cycle:

`(Sales)/(Average AP) = $AP Turnover`

​where:

`$$Average AP=(Beginning AP+ Ending AP)/2`

Purchases: 1,575,000

Beginning AP: 227,500

Ending AP: 316,200

Average AP: 271,850

`(1575000)/(271850) = $AP Turnover`

`(365)/(AP TO) = $payment cycle`

AP TO 5.793636196

payment cycle 63

Collection cycle

`(Sales)/(Average AR) = $AR Turnover`

Sales 102,000

Average AR 45,500

`(102000)/(45500) = $AR Turnover`

`(365)/(AR TO) = $collection cycle`

AR TO 2.241758242

`(365)/(2.24175824175824) = $collection cycle`

collection cycle 163