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Question 322 - CSCP discussion

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A company's cash-to-cash cycle time is 36 days. How many weeks of inventory are on hand if the average collection time from customers is 60 days, and the company pays its vendors in 45 days?

A.
Two
Answers
A.
Two
B.
Three
Answers
B.
Three
C.
Four
Answers
C.
Four
D.
Five
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D.
Five
Suggested answer: B

Explanation:

The cash-to-cash cycle time is the duration it takes for a company to convert its investments in inventory into cash flows from sales. The formula to calculate the cash-to-cash cycle time is:

Cash-to-CashCycleTime=InventoryDays+ReceivablesDaysPayablesDaysCash-to-CashCycleTime=InventoryDays+ReceivablesDaysPayablesDays

Given:

Cash-to-cash cycle time = 36 days

Receivables Days = 60 days

Payables Days = 45 days

Rearranging the formula to find the Inventory Days: InventoryDays=Cash-to-CashCycleTime+PayablesDaysReceivablesDaysInventoryDays=Cash-to-CashCycleTime+PayablesDaysReceivablesDays InventoryDays=36+4560=21daysInventoryDays=36+4560=21days

To find the number of weeks of inventory on hand: WeeksofInventory=InventoryDays7=217=3weeksWeeksofInventory=7InventoryDays=721=3weeks

APICS Dictionary

'Supply Chain Management: Strategy, Planning, and Operation' by Sunil Chopra and Peter Meindl

asked 16/09/2024
Jevgenij Žarikov
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