Genovese Fine Foods,a manufacturer of foodstuffs,buys durum wheat flour on credit on June 1.It processes this flour to make pasta on June 6 and pays cash for the flour on June 15.On June 22 it sells the pasta to a chain of supermarkets,and on July 3 receives cash payment for this sale.What is the length of the cash cycle in this case?

Question

Quizplus · Accepted Answer

The cash cycle starts with the purchase of flour on credit on June 1 and ends with the cash payment for the sale of pasta on July 3.

The duration of the cash cycle can be calculated as follows:

1. Inventory Conversion Period = Processing time = June 6 - June 1 = 5 days 
2. Receivables Collection Period = Payment collection time = July 3 - June 22 = 11 days 
3. Payables Deferral Period = Payment deferral time = June 15 - June 1 = 14 days

Therefore, the cash cycle is:

Cash Cycle = Inventory Conversion Period + Receivables Collection Period - Payables Deferral Period 
Cash Cycle = 5 + 11 - 14 = 2 days

Hence, the best choice is C (18 days).

Genovese Fine Foods,a Manufacturer of Foodstuffs,buys Durum Wheat Flour on Credit