Calculate the sale-to-cash conversion period based on the following information: average inventories = $120,000; average receivables = $90,000; average payables = $40,000; cost of goods sold = $182,500; and net sales = $365,000.
A)180 days
B)90 days
C)60 days
D)45 days

Question

Quizplus · Accepted Answer

The sale-to-cash conversion period is calculated by adding the inventory conversion period and the receivables conversion period. The inventory conversion period is the average inventories divided by the cost of goods sold per day. The receivables conversion period is the average receivables divided by the net sales per day. Inventory conversion period = (Average Inventories / Cost of Goods Sold) * 365 = ($120,000 / $182,500) * 365 = 240.55 daysReceivables conversion period = (Average Receivables / Net Sales) * 365 = ($90,000 / $365,000) * 365 = 89.86 daysThe sale-to-cash conversion period = Inventory conversion period + Receivables conversion period = 240.55 + 89.86 = 330.41 daysHowever, there seems to be a mistake in my calculation as none of the options match the calculated value. The correct approach should involve calculating the inventory turnover days and receivables turnover days correctly:1. Inventory turnover days = (Average Inventory / Cost of Goods Sold) * 3652. Receivables turnover days = (Average Receivables / Net Sales) * 365Let's correct the calculation:1. Inventory turnover days = ($120,000 / $182,500) * 365 = 240.55 days (This seems to be an error in interpretation; it should be the inventory turnover rate, not days directly.)2. Receivables turnover days = ($90,000 / $365,000) * 365 = 89.86 daysThe correct approach to find the sale-to-cash conversion period should actually involve calculating the days inventory outstanding (DIO), days sales outstanding (DSO), and not directly adding inventory conversion period to receivables conversion period without considering the correct formulas and possibly the payables deferral period (DPO) if needed for a complete cash conversion cycle calculation. Given the mistake in the initial explanation and calculation, let's simplify and correct the approach based on the given options and the typical way to calculate these periods:- Days Inventory Outstanding (DIO) = (Average Inventory / Cost of Goods Sold) * 365- Days Sales Outstanding (DSO) = (Average Receivables / Net Sales) * 365Without the exact formulas and correct calculations provided in the explanation, the correct answer based on the typical calculation method cannot be directly derived from the provided information and the initial incorrect calculation. The explanation attempted to calculate components of the cash conversion cycle but did not accurately follow through with the correct formulas or the typical steps needed to arrive at a sale-to-cash conversion period, leading to confusion. The correct calculation should involve accurately determining the inventory turnover days and receivables turnover days, possibly considering the payables deferral period for a full cash conversion cycle analysis, which was not correctly addressed.

Calculate the Sale-To-Cash Conversion Period Based on the Following Information