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Financial Management
1) Kolman’s Business operating cycle is 56 days
Operating cycle = Production cycle +collection cycle
= 35 + 21
=56 days
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Kolman’s cash conversion cycleis 42 days
Cash conversion cycle = Operating cycle -payment cycle.
=56 days - 14 days
=42 days
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If Kolman reduces the production cycle by 7 days, effect on cash conversion cycle?
Option B: Reducing the production cycle by 7 days reduces the cash conversion cycle by 7 days . New conversion cycle will be 35 days.
Explanation:
Revised production cycle = Old production cycle - number of days reduced
=35 - 7
= 28 days
New operating cycle = 28 days + 21 days = 49 days
New cash conversion cycle = 49 days - 14 days = 35 days
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If Kolman decrease the collection cycle by 7 days, what is the effect on cash conversion cycle.
Option B:
Reducing the collection cycle by 7 days reduces the cash conversion cycle by 7 days to 35 days
Explanation:
Revised collection cycle = Old collection cycle - Number of days reduced.
= 21- 7
=14 days
New operating cycle = 35 days + 14 days = 49 days
New cash conversion cycle = 49 days - 14 days= 35 days
If kolman increases the payment cycle by 7 days, what is effect on the cash conversion cycle.
Option A:
Increase the payment cycle by 7 days, reduces the cash conversion cycle by 7 days to 35 days.
Explanation:
Revised payment cycle = = Old payment cycle + Number of days increased
=14 days + 7 dyas = 21 days.
New cash conversion cycle = 56 days – 21 days = 35 days
2) Average production cycle =36.5 days
Average production cycle = 365 days / Inventory turnover
=365 days /10
=36.5
Inventory turnover = Cost of goods sold / Average Inventory
=$570,000 / $57000
=10 times.
Average inventory = Beginning Inventory + Ending Inventory / 2
=$55000 + $59000 / 2 = $57000
3) Average collection cycle = 22.8 days
Average collection cycle = 365 days / Accounts receivable turnover rate
=365 days / 16 times
=22.8 days
Accounts receivable turnover = Credit sales / average accounts receivable
=$672,000 / $42000
=16 times
Average accounts receivable =Beginning accounts receivable + Ending accounts receivable /2
=$38000+ $46000 /2
=$42000
4)Ending accounts payable =...