Monar Inc'S CFO Would Like to Decrease Its Cash Conversion Cycle

question 122

Multiple Choice

Monar Inc.'s CFO would like to decrease its cash conversion cycle by 10 days (based on a 365 day year) .The company carries average inventory of $750,000.Its annual sales are $10 million, its cost of goods sold is 75% of annual sales, and its average collection period is twice as long as its inventory conversion period.The firm buys on terms of net 30 days, and it pays on time.The CFO believes he can reduce the average inventory to $647,260 with no effect on sales.By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of the cash conversion cycle?

• A) $123,630
• B) $130,137
• C) $136,986
• D) $143,836
• E) $151,027

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Definitions:

Direct Labor

The wages and expenses directly associated with workers who physically produce goods or provide services.

Work in Process Inventory

Represents goods that are in the process of being manufactured but are not yet completed.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including material and labor costs.

Finished Goods Inventory

The stock of completed products that are ready to be sold but are still in the company's inventory.