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    This document contains 5 problems related to calculating financial metrics like operating cycle, inventory conversion period, average collection period, payables deferral period, and cash conversion cycle. The problems provide data on production times, inventory levels, accounts receivable, accounts payable, sales, costs of goods sold, inventory values, ordering costs and carrying costs to calculate metrics like economic order quantity, average inventory levels, number of orders per year, and total inventory costs.

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    This document contains 5 problems related to calculating financial metrics like operating cycle, inventory conversion period, average collection period, payables deferral period, and cash conversion cycle. The problems provide data on production times, inventory levels, accounts receivable, accounts payable, sales, costs of goods sold, inventory values, ordering costs and carrying costs to calculate metrics like economic order quantity, average inventory levels, number of orders per year, and total inventory costs.

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    © All Rights Reserved
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    13 views1 page

    Activity 3

    Uploaded by

    soleil
    This document contains 5 problems related to calculating financial metrics like operating cycle, inventory conversion period, average collection period, payables deferral period, and cash conversion cycle. The problems provide data on production times, inventory levels, accounts receivable, accounts payable, sales, costs of goods sold, inventory values, ordering costs and carrying costs to calculate metrics like economic order quantity, average inventory levels, number of orders per year, and total inventory costs.

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    © All Rights Reserved
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    of 1

    BSIA 2A

    ACTIVITY 3

    NAME: ________________________________________

    Direction: Show your solutions.

    1. JGS Corp has an average production process time of 50 days. Finished goods are kept on hand for an average
    of 20 days before they are sold. Accounts receivable are outstanding an average of 35 days, and the firm
    receives 50 credit days on its purchase from suppliers.
    a. Estimate the average length of the firm’s short-term operating cycle. How often would the cycle turn
    over in a 365-day year?
    b. Assume net sales of P1,000,000 and cost of goods sold of P800,000. Determine the average investment
    in accounts receivable, inventories, and accounts payable.

    2. If the average age of inventory is 60 days, the average age of the accounts payable is 30 days, and the average
    age of accounts receivable is 45 days, the number of days in cash flow cycle is?

    3. Fruitcake Specialists sells 36,000 fruit cakes annually. Annual carrying costs are P5 per fruit cake and the
    ordering costs are P100 per order. The firm has decided to maintain a safety stock of one month’s sales or
    3,000 fruitcakes. The delivery time per order is 5 days. Assume a 365-day year.
    a. What is the economic order quantity (EOQ)?
    b. What is the average inventory?
    c. How many orders should be placed each year?
    d. What is the total inventory cost?
    e. What is the reorder point?

    4. The ASV Company sells large industrial dryers that have an inventory value of P500,000 each. The company
    expects to order 500 units during the next calendar years. Ordering cost is P1,000 per order and carrying cost
    is 20% of the value of average inventory. Find the:
    a. Economic order quantity
    b. Optimal number of orders per year
    c. Total ordering cost per year

    5. Given below are Michelle Company’s data for the year.

    Item Beginning Balance Ending Balance Total for the Year


    Inventory P2,300,000 P3,500,000
    Accounts Receivable P1,750,000 P2,300,000
    Accounts Payable P700,000 P900,000
    Net Sales P13,000,000
    Cost of Goods Sold P8,500,000

    a. Inventory Conversion Period


    b. Average Collection Period
    c. Operating Cycle
    d. Payables Deferral Period
    e. Cash Conversion Period

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