Georgie Ltd currently offers credit terms of 50 days to all of its customers. In practice, their average settlement period for trade receivables for 20X1 was 60 days. Management would like to calculate the whole Operating Cash Cycle for the business and consider ways to reduce it. They are considering offering a prompt payment discount to customers which they think will reduce their average receivables settlement period to 40 days. They note the following figures: Average inventory for 20X1 was £102,000 Cost of Sales for 20X1 was £759,000 Average trade payables for 20X1 was £72,000 Please round answers to one decimal place or the nearest whole number. Required Calculate the trade payables settlement period Calculate the inventory turnover period Calculate Georgie Ltd’s total Operating Cash Cycle without any payment
Georgie Ltd currently offers credit terms of 50 days to all of its customers. In practice, their average settlement period for trade receivables for 20X1 was 60 days. Management would like to calculate the whole Operating Cash Cycle for the business and consider ways to reduce it. They are considering offering a prompt payment discount to customers which they think will reduce their average receivables settlement period to 40 days. They note the following figures: Average inventory for 20X1 was £102,000 Cost of Sales for 20X1 was £759,000 Average trade payables for 20X1 was £72,000 Please round answers to one decimal place or the nearest whole number. Required Calculate the trade payables settlement period Calculate the inventory turnover period Calculate Georgie Ltd’s total Operating Cash Cycle without any payment
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 11P
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Georgie Ltd currently offers credit terms of 50 days to all of its customers. In practice, their average settlement period for trade receivables for 20X1 was 60 days.
Management would like to calculate the whole Operating Cash Cycle for the business and consider ways to reduce it. They are considering offering a prompt payment discount to customers which they think will reduce their average receivables settlement period to 40 days.
They note the following figures:
Average inventory for 20X1 was £102,000
Cost of Sales for 20X1 was £759,000
Average trade payables for 20X1 was £72,000
Please round answers to one decimal place or the nearest whole number.
Required
Calculate the trade payables settlement period
Calculate the inventory turnover period
Calculate Georgie Ltd’s total Operating Cash Cycle without any payment discount
What is the Operating Cash Cycle likely to be after the prompt payment discount has been applied?
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