Nancy has just been appointed as the CFO of a small-sized food company ABC Food,...
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Finance
Nancy has just been appointed as the CFO of a small-sized food company ABC Food, Inc., and is keen to measure the firms cash conversion cycle, operating cycle, and payment cycle, so as to see if any changes are warranted. She collects the necessary information at the end of December 2020, and puts together the table below (Assume there are 365 days in a year):
Total sales $800,000
Cost of goods sold $640,000
Beginning Balance Ending Balance
Accounts receivable $40,000 $36,000
Inventory $10,000 $ 6,000
Accounts payable $ 9,000 $15,000
Calculate the average payable period and average receivable period
(10 marks)
Calculate the cash conversion cycle for the year to end December 2020.
(10 marks)
ABC Food, Inc., has recently installed a just-in-time (JIT) inventory system. Describe the effect this is likely to have on the companys carrying costs, and operating cycle.
(4 marks)
Indicate the effect that the following will have on the operating cycle. Use the letter I to indicate an increase, the letter D for a decrease, and the letter N for no change
Average receivables goes up.
Payments to suppliers are accelerated.
Credit repayment times for customers are increased.
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