Last year, Berecz Power had net sales of $5 million and cost of goods sold of $3 million. A review of the firm's balance sheet reveals the following account levels: accounts receivable, $500,000; inventories, $350,000; and accounts payable, $375,000. What is Berecz's cash conversion period? Assume a 365-day year.
A) 31.50 days
B) 33.45 days
C) 35.63 days
D) 37.01 days
E) 39.05 days

Question

Quizplus · Accepted Answer

The cash conversion cycle (CCC) is calculated as the sum of the days sales outstanding (DSO), the days inventory outstanding (DIO), and the days payable outstanding (DPO). First, calculate each component:- DSO = (Accounts Receivable / Net Sales) * 365 = ($500,000 / $5,000,000) * 365 = 36.5 days- DIO = (Inventories / Cost of Goods Sold) * 365 = ($350,000 / $3,000,000) * 365 = 42.58 days- DPO = (Accounts Payable / Cost of Goods Sold) * 365 = ($375,000 / $3,000,000) * 365 = 45.63 daysThen, CCC = DSO + DIO - DPO = 36.5 + 42.58 - 45.63 = 33.45 days.

Last Year, Berecz Power Had Net Sales of $5 Million