P151 Cash conversion cycle American Products is concerned about managing cash efficiently. On average, inventories have an age of 80 days, and accounts receivable are collected in 40 days. Accounts payable are paid approximately 30 days after they arise. The firm has annual sales of about $30 million. Goods sold total $20 million, and purchases are $15 million. a. Calculate the firm's operating cycle. b. Calculate the firm's cash conversion cycle. c. Calculate the amount of resources needed to support the firm's cash conversion cycle. d. Discuss how management might be able to reduce the cash conversion cycle. part a. Operating cycle = Average Age of Inventories + Average Collection Period days Avg. Age of Inventories Avg. Collection Period (Accounts Receivable) The firm's Operating Cycle days o days part b. Cash Conversion Cycle = Operating Cycle - Average Payment Period Operating Cycle (from part a) Avg. Payment Period Cash Conversion Cycle o days days O days part c. To calculation the amount of resources needed, you must calculate the inventory balance, the receivables balance, and the accounts payable Goods Sold total Annual Sales Purchases $ 20,000,000 $ 30,000,000 15,000,000 Inventory Balance Receivables Balance Accounts Payables Balance Total Resource Requirements $ $ $ $ part d