Norquay Inc.manufactures computers.The company tries to minimize the amount of inventory it must carry and therefore only purchases required components after a customer order is received.The computers are usually completed within two days of the customer order and then shipped to the customer on the fourth day following the purchase of materials.Supplier's terms dictate that all purchases must be paid for within 30 days.Norquay offers a deferred financing plan to all of its customers that allow them a 60-day period of no payments or interest.Most of the customers pay their entire balance on the 60th day following delivery of the computer.What is Norquay's inventory self-financing period?

Question

Quizplus · Accepted Answer

Norquay's inventory self-financing period is the time between the purchase of materials and the receipt of payment from customers. In this case, it takes 4 days to complete the computers and an additional 60 days for customers to pay for them. However, Norquay has to pay for the materials within 30 days of purchase. Therefore, the computation is 30 + 4 + 60 = 94 days. This means that Norquay's inventory self-financing period is 94 days, which is closest to D) 34 days.