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Cash Conversion Cycle & EOQ Analysis

The document contains 7 questions regarding inventory management, cash conversion cycles, accounts receivable, and economic order quantity models. It asks the reader to calculate average inventory levels, cash conversion cycles, accounts receivable balances, optimal order quantities, and total annual inventory costs using formulas and information provided.

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ROB101512
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361 views1 page

Cash Conversion Cycle & EOQ Analysis

The document contains 7 questions regarding inventory management, cash conversion cycles, accounts receivable, and economic order quantity models. It asks the reader to calculate average inventory levels, cash conversion cycles, accounts receivable balances, optimal order quantities, and total annual inventory costs using formulas and information provided.

Uploaded by

ROB101512
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

1) A firm has an average age of inventory of 60 days, an average collection period of 45 days, and an

average payment period of 30 days. The firm's cash conversion cycle is ______ days.

2) Spartan Sporting Goods has P5 million in inventory and P2 million in accounts receivable. Its average
daily sales are P100,000. The company’s payables deferral period (accounts payable divided by daily
purchases) is 30 days. What is the length of the company’s cash conversion cycle?

3) Suppose that the interest rate on Treasury bills is 6%, and every sale of bills costs P60. You pay out
cash at a rate of P800,000 a year. According to Baumol's model of cash balances, how many times a
year should you sell bills?

4) Suppose that the interest rate on Treasury bills is 6%, and every sale of bills costs P20. You pay out
cash at a rate of P400,000 a month. According to Baumol's model of cash balances, how many times
a month should you sell bills?

5) JBJ Company’s account balance at June 30, 1987 for account receivables and related allowances for
doubtful accounts were P600,000 and P3,000 respectively. Aging of accounts receivable indicated
that P48,000 of the June 30, 1987 receivable may be uncollectible. Net realizable value of accounts
receivable were:

6) The Irwin Corporation has P3 million per year in credit sales. The company's average day's sales
outstanding is 40 days. Assuming a 360-day year, what is Irwin's average amount of accounts
receivable outstanding?

Pullman carries a part that is popular in the manufacture of automatic sprayers. Demand for this part is 4,000
units per year; order costs amount to P30 per order, and holding costs total P1.50 per unit. Pullman currently
places four orders per year with its suppliers.

Management is considering the implementation of an economic order quantity model in an effort to better
manage its inventories.

Required:
7) Compute Pullman's economic order quantity.
8) Compute total annual inventory costs if Pullman follows the EOQ policy.

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