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Question 215 - CSCP discussion

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A firm has determined its cash-to-cash cycle time to be 60 days. The number of days' payables outstanding is 25, and number of days' sales outstanding is 35. If the firm reduces its inventory by 20%, the new cash-to-cash cycle time, in days, will be approximately:

A.
48.
Answers
A.
48.
B.
50.
Answers
B.
50.
C.
60.
Answers
C.
60.
D.
88.
Answers
D.
88.
Suggested answer: B

Explanation:

The cash-to-cash cycle time is calculated as the sum of days' sales outstanding (DSO), days' inventory outstanding (DIO), and minus days' payables outstanding (DPO). Given:

Cash-to-cash cycle time = 60 days

DSO = 35 days

DPO = 25 days

First, determine the DIO: =60+2535=50daysDIO=60+2535=50days

If inventory is reduced by 20%, the new DIO is: =50(10.20)=40daysDIOnew=50(10.20)=40days

Now, calculate the new cash-to-cash cycle time: Newcash-to-cashcycletime=+Newcash-to-cashcycletime=DSO+DIOnewDPO Newcash-to-cashcycletime=35+4025=50daysNewcash-to-cashcycletime=35+4025=50days

Therefore, the new cash-to-cash cycle time will be approximately 50 days.

Reference:

Coyle, J. J., Langley, C. J., Novack, R. A., & Gibson, B. (2016). Supply Chain Management: A Logistics Perspective. Cengage Learning.

Jacobs, F. R., & Chase, R. B. (2020). Operations and Supply Chain Management. McGraw-Hill Education.

asked 16/09/2024
Jacek Kaleta
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