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31 January, 23:43

Suppose that Freddie's Fries has annual sales of $650,000; cost of goods sold of $525,000; average inventories of $24,000; average accounts receivable of $40,000, and an average accounts payable balance of $35,000. Assuming that all of Freddie's sales are on credit, what will be the firm's cash cycle? (Round your answer to 2 decimal places.

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  1. 1 February, 03:27
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    14.81 days

    Explanation:

    The computation of the cash cycle is shown below:

    The cash cycle = Days inventory outstanding + days sale outstanding - days payable outstanding

    where,

    Day inventory outstanding = (Beginning inventory + ending inventory) : cost of goods sold * number of days in a year

    = ($24,000 : $525,000) * 365 days

    = 16.68 days

    Day sale outstanding = (Beginning Accounts receivable + ending Accounts receivable) : Net sales * number of days in a year

    = ($40,000 : $650,000) * 365 days

    = 22.46 days

    And, Day payable outstanding = (Beginning Accounts payable + ending Accounts payable) : cost of goods sold * number of days in a year

    = ($35,000 : $525,000) * 365 days

    = 24.33 days

    Now put these days to the above formula

    So, the days would equal to

    = 16.68 days + 22.46 days - 24.33 days

    = 14.81 days
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