a. How long is cash typically tied up in inventories? (Show computations) b. What would be the likely effect to Acme's operating cycle if the company changes its current policy that sales upon credit must

a. How long is cash typically tied up in inventories? (Show computations) b. What would be the likely effect to Acme's operating cycle if the company changes its current policy that sales upon credit must

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 10QTD

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Concept explainers

Inventory Accounting

Inventory accounting is that branch of accounting that helps in determining the specific value of assets at different stages of production and development.

Question

4. On average it takes Acme Tool Company 80 days to collect on its sales receivables, and its operating cycle is 290 days.

a. How long is cash typically tied up in inventories? (Show computations)

b. What would be the likely effect to Acme's operating cycle if the company changes its current policy that sales upon credit must be paid within 3 months, instead requiring payment within 2 months? (No calculations needed, just describe the likely effect on Acme's operating cycle.)

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