Which of the following actions would be likely to shorten the cash conversion cycle?
A) Adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days.
B) Change the credit terms offered to customers from 3/10,net 30 to 1/10,net 50.
C) Begin to take discounts on inventory purchases;we buy on terms of 2/10,net 30.
D) Adopt a new manufacturing process that saves some labor costs but slows down the conversion of raw materials to finished goods from 10 days to 20 days.
E) Change the credit terms offered to customers from 2/10,net 30 to 1/10,net 60.

Question

Quizplus · Accepted Answer

Adopting a new manufacturing process that speeds up the conversion of raw materials to finished goods would reduce the time taken to convert inventory to receivables, thus shortening the cash conversion cycle. Option B and E would not have a substantial impact on shortening the cash conversion cycle. Option C might have a positive impact on the cash conversion cycle, but it is not clear by how much. Option D would lengthen the cash conversion cycle, as it would take longer to convert raw materials to finished goods.

Which of the Following Actions Would Be Likely to Shorten