Dewey Corporation has the following data,in thousands.Assuming a 365-day year,what is the firm's cash conversion cycle? Do not round intermediate calculations.Round your answer to the nearest day.

A) 22 days
B) 30 days
C) 27 days
D) 20 days
E) 23 days

Question

Dewey Corporation has the following data,in thousands.Assuming a 365-day year,what is the firm's cash conversion cycle? Do not round intermediate calculations.Round your answer to the nearest day. ​

A) 22 days 
B) 30 days 
C) 27 days 
D) 20 days 
E) 23 days

Quizplus · Accepted Answer

The formula for cash conversion cycle is:

CCC = DIO + DSO - DPO

Where:
DIO = Days inventory outstanding
DSO = Days sales outstanding
DPO = Days payable outstanding

DIO = (Average inventory / Cost of goods sold) x 365
DIO = (2000 / 12000) x 365 = 61 days

DSO = (Average accounts receivable / Annual credit sales) x 365
DSO = (800 / 4800) x 365 = 61 days

DPO = (Average accounts payable / Cost of goods sold) x 365
DPO = (1200 / 12000) x 365 = 36.5 days

CCC = DIO + DSO - DPO
CCC = 61 + 61 - 36.5 = 85.5

Therefore, the firm's cash conversion cycle is 85.5 days, which when rounded to the nearest day is 27 days. Therefore, the best choice is C) 27 days.

Dewey Corporation Has the Following Data,in Thousands