Question:

I have a question that I did not answer correctly about inventory that I do not understand quite how to fix. The question and my incorrect answer is pasted below. The comment in BOLD is from the assessor.

Question:

CASH CONVERSION CYCLE Zocco Corporation has an inventory conversion period of 75 days, an average collection period of 38 days, and a payables deferral period of 30 days.

What is the length of the cash conversion cycle?

• 75 days inventory conversion + 38 days collection - 30 days payable = 83 Days (Correct)
• IfZocco'sannualsalesare$3,421,875andallsalesareoncredit,whatistheinvestmentinaccountsreceivable?
• 38 days collection period x 3421875 annual sales/365 = $356,250 Zocco's investment in accounts receivable (Correct)

How many times per year does Zocco turn over its inventory? Assume that cost of goods sold is 75% of sales.

34218758 x 75% = 2566406 Cost of goods sold

3421875 annual sales/ 2566406 cost of goods sold = 1.33 times inventory turns over in the year

Not correct. First need to compute inventory balance from the inventory conversion period. Then you can compute the inventory turnover using the inventory balance.