Answer to Question #67532 in Accounting for Jeulliette

Question

Margetis Inc. carries an average inventory of $750,000. Its annual
sales are $10 million, its cost of goods sold is 75% of annual sales,
and its average collection period is twice as long as its inventory
conversion period. The firm buys on terms of net 30 days, and it pays
on time. Its new CFO wants to decrease the cash conversion cycle by 10
days, based on a 365-day year. He believes he can reduce the average
inventory to $647,260 with no effect on sales. By how much must the
firm also reduce its accounts receivable to meet its goal in the
reduction of the cash conversion cycle?