Question

Consider this data for Marston Manufacturing Company and use it to complete the table:

Selected Financial Data for
Marston Manufacturing Company
Average cash $57,813
Average accounts payable $320,000
Average accounts receivable $1,387,500
Average inventories $693,750
Average cash sales $4,625,000
Average credit sales $13,875,000
Average cost of goods sold $8,325,000
Average number of days per year 365 days
Inventory conversion period 30.42 days
Payables deferral period days
Receivables conversion period
Operating cycle 66.92 days
Cash conversion cycle 52.89 days

Answer 1

Answer and Explanation:

The computation is shown below:

Payable Deferral Period = 365 ÷ Payable turnove ratio

where,

Payables Turnover Ratio = Average Cost of Goods Sold ÷ Average Accounts Payable

= ($8,325,000 ÷ $320,000)

= 26.02

Now payable deferral period is

= 365 ÷ 26.02

= 14.02 days

And, the receivables conversion period is

= 365 ÷ receivable turnover ratio

where

Receivables Turnover Ratio = Average credit sales ÷ Average Accounts receivable

= ($13,875,000 ÷ $1,387,500)

= 10

Now receivable turnover period is

= 365 ÷ 10

= 36.50 days