Question 1

Perfect Purchase Electronics Selected Income Statement Items, 2009
Cash Sales $1,500,000
Credit Sales $7,500,000
Total Sales $9,000,000
COGS $6,000,000
Perfect Purchase Electronics
Selected Balance Sheet Accounts
12/31/2009 12/31/2008 Change
Accounts Receivable $270,000 $240,000 $30,000
Inventory $125,000 $100,000 $25,000
Accounts Payable $110,000 $90,000 $20,000
Using the information provided, what is the accounts payable cycle for the firm?
A) 4.06 days
B) 4.87 days
C) 6.08 days
D) 24.33 days

Accepted Answer

The accounts payable cycle can be calculated as (Accounts Payable / COGS) * 365 days. Using the figures provided: (110,000 / 6,000,000) * 365 = 6.76. Rounded to the nearest whole number, the accounts payable cycle for the firm is 6 days. Therefore, the best choice is C.

Question 2

The ________ is the period from the start of cash outflow for producing a product or service until the associated cash inflow materializes from the sale of that product or service.
A) cash conversion cycle
B) accounts receivable cycle
C) current ratio
D) business operating cycle

Accepted Answer

The period from the start of cash outflow for producing a product or service until the associated cash inflow materializes from the sale of that product or service is called the cash conversion cycle. Choices B and C are not relevant to the definition, while choice D is a similar concept but does not specifically mention the period between cash outflow and inflow.

Question 3

The cash conversion cycle consists of three parts. List and define these three parts. How do they fit together to form the cash conversion cycle? You may answer this last question with a formula if you wish.

Accepted Answer

The three parts of the cash conversion cycle are the production cycle, the collection cycle, and the payment cycle. The production cycle is the period of time from when the firm first starts to make the product until the customer buys it. The collection cycle runs from the sale of the product until payment is received, and the payment cycle begins when the firm purchases necessary raw materials and ends when payment is made. The cash conversion cycle consists of the production cycle plus the collection cycle minus the payment cycle.

Question 4

The time between when a raw material is ordered and received and when it is paid for is called the cash conversion cycle.

Accepted Answer

The cash conversion cycle measures the time between when a company pays for its inventory and when it receives cash from selling that inventory, not specifically the time between ordering/receiving raw materials and paying for them.

Question 5

The cash conversion cycle is comprised of the production cycle minus the collection cycle plus the payment cycle.

Accepted Answer

The cash conversion cycle is comprised of the inventory (or production) cycle plus the receivables (or collection) cycle minus the payables (or payment) cycle.

Question 6

Perfect Purchase Electronics Selected Income Statement Items, 2009
Cash Sales $1,500,000
Credit Sales $7,500,000
Total Sales $9,000,000
COGS $6,000,000
Perfect Purchase Electronics
Selected Balance Sheet Accounts
12/31/2009 12/31/2008 Change
Accounts Receivable $270,000 $240,000 $30,000
Inventory $125,000 $100,000 $25,000
Accounts Payable $110,000 $90,000 $20,000
Using the information provided, what is the accounts receivable turnover for the firm?
A) 23.53 times
B) 29.41 times
C) 53.33 times
D) 60.00 times

Accepted Answer

The answer of Perfect Purchase Electronics Selected Income Statement Items,...

Question 7

Perfect Purchase Electronics Selected Income Statement Items, 2009
Cash Sales $1,500,000
Credit Sales $7,500,000
Total Sales $9,000,000
COGS $6,000,000
Perfect Purchase Electronics
Selected Balance Sheet Accounts
12/31/2009 12/31/2008 Change
Accounts Receivable $270,000 $240,000 $30,000
Inventory $125,000 $100,000 $25,000
Accounts Payable $110,000 $90,000 $20,000
Using the information provided, what is the length of the production cycle for the firm?
A) 6.08 days
B) 7.60 days
C) 53.33 days
D) 6.84 days

Accepted Answer

The answer of Perfect Purchase Electronics Selected Income Statement Items,...

Question 8

Managing the relationship between current assets and current liabilities of the firm in order to improve the flow of funds is called ________.
A) the business operating cycle
B) the cash conversion cycle
C) working capital management
D) the production cycle

Accepted Answer

Working capital management involves managing the relationship between current assets (such as inventory and accounts receivable) and current liabilities (such as accounts payable and short-term loans) in order to ensure that the firm has enough liquidity to operate effectively. The business operating cycle and production cycle are related concepts but do not specifically address the management of working capital. The cash conversion cycle is a more specific measure within working capital management but is not the overall term for the practice.

Question 9

Perfect Purchase Electronics Selected Income Statement Items, 2009
Cash Sales $1,500,000
Credit Sales $7,500,000
Total Sales $9,000,000
COGS $6,000,000
Perfect Purchase Electronics
Selected Balance Sheet Accounts
12/31/2009 12/31/2008 Change
Accounts Receivable $270,000 $240,000 $30,000
Inventory $125,000 $100,000 $25,000
Accounts Payable $110,000 $90,000 $20,000
Using the information provided, what is the collection cycle for the firm?
A) 6.84 days
B) 7.60 days
C) 10.34 days
D) 12.41 days

Accepted Answer

The answer of Perfect Purchase Electronics Selected Income Statement Items,...

Question 10

The ________ starts at the time production begins and ends with the collection of cash from the sale of the product.
A) accounts receivable cycle
B) business operating cycle
C) cash conversion cycle
D) production cycle

Accepted Answer

The answer of The ________ starts at the time production...

Question 11

The ________ begins at the time a firm first starts to make a product and lasts until the time the customer buys the product.
A) business operating cycle
B) accounts receivable cycle
C) cash conversion cycle
D) production cycle

Accepted Answer

The production cycle begins at the time a firm first starts to make a product and lasts until the time the customer buys the product. The other cycles mentioned (business operating cycle, accounts receivable cycle, and cash conversion cycle) refer to different stages of the business process.

Question 12

Managing these assets and liabilities in such a way as to improve the company's flow of funds is what capital budgeting is all about.

Accepted Answer

Capital budgeting is the process of planning and managing a company's long-term investments, not its flow of funds. Managing assets and liabilities to improve cash flow is more related to working capital management.

Question 13

Using the information provided, what is the inventory turnover for the firm? Perfect Purchase Electronics
Selected Income Statement Items, 2009
Cash Sales $1,500,000
Credit Sales $7,500,000
Total Sales $9,000,000
COGS $6,000,000
Perfect Purchase Electronics
Selected Balance Sheet Accounts
12/31/2009 12/31/2008 Change
Accounts Receivable $270,000 $240,000 $30,000
Inventory $125,000 $100,000 $25,000
Accounts Payable $110,000 $90,000 $20,000
A) 23.53 times
B) 53.33 times
C) 48.00 times
D) 60.00 times

Accepted Answer

The answer of Using the information provided, what is the...

Question 14

Jolly Roger Kite Company has a payment cycle of 17 days, a collection cycle of 31 days, and a production cycle of 12 days. What is the average cash conversion cycle for the Jolly Roger Company?
A) 2 days
B) 36 days
C) 26 days
D) 60 days

Accepted Answer

The cash conversion cycle (CCC) is calculated by adding the production cycle to the collection cycle and subtracting the payment cycle:

CCC = Production cycle + Collection cycle - Payment cycle
CCC = 12 days + 31 days - 17 days
CCC = 26 days

Therefore, the average cash conversion cycle for Jolly Roger Kite Company is 26 days, which is option C.

Question 15

Which of the following is NOT true of the cash conversion cycle?
A) It is the net period from the start of cash outflow for producing a product or service until the associated cash inflow materializes from the sale of that product or service.
B) Cash Conversion Cycle = Production Cycle + Collection Cycle - Payment Cycle
C) Cash Conversion Cycle = Production Cycle + Collection Cycle + Payment Cycle
D) The cash conversion cycle essentially measures how quickly a company can convert its products or services into cash.

Accepted Answer

The formula given in option C (Cash Conversion Cycle = Production Cycle + Collection Cycle + Payment Cycle) is incorrect as it includes the payment cycle, which is actually a component of the operating cycle. The correct formula for the cash conversion cycle is given in option B.

Question 16

The cash conversion cycle is the net period from the start of cash outflow for producing a product or service until the associated cash inflow materializes from the sale of that product or service.

Accepted Answer

The cash conversion cycle is indeed the net period from cash outflow for production until cash inflow from product or service sale.

Question 17

The business operating cycle has two components: the production cycle and the collection cycle.

Accepted Answer

The business operating cycle includes two main components: the production cycle (which involves the conversion of raw materials into finished goods) and the sales/collection cycle (which involves the selling of those goods and collecting payment from customers).

Question 18

To determine the average cash conversion cycle, we must first compute the average production cycle, the average collection cycle, and the average payment cycle.

Accepted Answer

This is correct as the formula for calculating the cash conversion cycle is (average collection period + average inventory turnover period) - average payment period. To calculate this, we need to first determine the average production cycle, the average collection cycle, and the average payment cycle.

Question 19

The production cycle ________.
A) is the period from the start of cash outflow for producing a product or service until the associated cash inflow materializes from the sale of that product or service
B) begins at the time a firm first starts to make a product and lasts until the time the customer buys the product
C) starts when production begins and ends with the collection of cash from the sale of the product
D) starts when the customer takes delivery of the product and ends when the firm receives payment for the product

Accepted Answer

The answer of The production cycle ________.
A) is the period...

Question 20

Perfect Purchase Electronics Selected Income Statement Items, 2009
Cash Sales $1,500,000
Credit Sales $7,500,000
Total Sales $9,000,000
COGS $6,000,000
Perfect Purchase Electronics
Selected Balance Sheet Accounts
12/31/2009 12/31/2008 Change
Accounts Receivable $270,000 $240,000 $30,000
Inventory $125,000 $100,000 $25,000
Accounts Payable $110,000 $90,000 $20,000
Using the information provided, what is the accounts payable turnover for the firm?
A) 15 times
B) 60 times
C) 75 times
D) 90 times

Accepted Answer

Accounts payable turnover = Total purchases / Average accounts payable
We don't know the total purchases, but we do know COGS, which is related to purchases. We can assume that purchases are roughly equal to COGS.
Therefore, accounts payable turnover = COGS / Average accounts payable
Average accounts payable = (Beginning accounts payable + Ending accounts payable) / 2
Average accounts payable = ($90,000 + $110,000) / 2 = $100,000
Accounts payable turnover = $6,000,000 / $100,000 = 60 times.

Quiz 13: Working Capital Management

The ________ is the period from the start of cash outflow for producing a product or service until the associated cash inflow materializes from the sale of that product or service.

The cash conversion cycle consists of three parts. List and define these three parts. How do they fit together to form the cash conversion cycle? You may answer this last question with a formula if you wish.

The time between when a raw material is ordered and received and when it is paid for is called the cash conversion cycle.

The cash conversion cycle is comprised of the production cycle minus the collection cycle plus the payment cycle.

Managing the relationship between current assets and current liabilities of the firm in order to improve the flow of funds is called ________.

The ________ starts at the time production begins and ends with the collection of cash from the sale of the product.

The ________ begins at the time a firm first starts to make a product and lasts until the time the customer buys the product.

Managing these assets and liabilities in such a way as to improve the company's flow of funds is what capital budgeting is all about.

Jolly Roger Kite Company has a payment cycle of 17 days, a collection cycle of 31 days, and a production cycle of 12 days. What is the average cash conversion cycle for the Jolly Roger Company?

Which of the following is NOT true of the cash conversion cycle?

The cash conversion cycle is the net period from the start of cash outflow for producing a product or service until the associated cash inflow materializes from the sale of that product or service.

The business operating cycle has two components: the production cycle and the collection cycle.

To determine the average cash conversion cycle, we must first compute the average production cycle, the average collection cycle, and the average payment cycle.

The production cycle ________.