Cash conversion cycle: West Handicrafts Ltd has net sales of $423,000 with 30 per cent of it being credit sales. Its cost of sales is $324,000. The company's cash conversion cycle is 47.9 days. The company's operating cycle is 86.3 days. What is the company's accounts payable? Round to the nearest dollar
A) $34,087
B) $126,900
C) $71,203
D) $56,322

Question

Quizplus · Accepted Answer

We can use the formula for cash conversion cycle: CCC = DIO + DSO - DPO, where DIO is days inventory outstanding, DSO is days sales outstanding, and DPO is days payable outstanding.

We are given that the cash conversion cycle is 47.9 days and the operating cycle is 86.3 days. This means that DIO + DSO = 86.3 and DPO = DIO + DSO - CCC = 86.3 - 47.9 = 38.4 days.

To find the accounts payable, we need to multiply the daily cost of sales by the number of days payable outstanding:

Accounts payable = DPO * (cost of sales / 365) = 38.4 * (324,000 / 365) ≈ $34,087 (rounded to the nearest dollar)

Therefore, the best choice is A with the explanation as shown above.

Cash Conversion Cycle: West Handicrafts Ltd Has Net Sales of $423,000