Question

Lolla Inc. currently has $875,000 in accounts receivable, $675,500 in inventories, and $875,000 in accounts payable on its balance sheet. The firm's production manager has determined that the cost of goods sold (COGS) is 80% of the annual sales revenue produced, totaling $6,250,000. Lolla's production manager has determined that through negotiations with its suppliers, the firm could reduce their COGS sold down to 70% and thus reduce its cash conversion cycle time.

          Lolla Inc. currently has $875,000 in accounts receivable, $675,500 in inventories, and $875,000 in accounts payable on its balance sheet. The firm's production manager has determined that the cost of goods sold (COGS) is 80% of the annual sales revenue produced, totaling $6,250,000. Lolla's production manager has determined that through negotiations with its suppliers, the firm could reduce their COGS sold down to 70% and thus reduce its cash conversion cycle time.

Added by Alan F.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

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Solved by Expert Izxy Tech

Step 1

To calculate the CCC for Lolla Inc. before the reduction in COGS, we need to use the formula: CCC = DIO + DSO - DPO where DIO is the days inventory outstanding, DSO is the days sales outstanding, and DPO is the days payable outstanding. DIO = (average inventory Show more…

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Lolla Inc. currently has $875,000 in accounts receivable, $675,500 in inventories, and $875,000 in accounts payable on its balance sheet. The firm's production manager has determined that the cost of goods sold (COGS) is 80% of the annual sales revenue produced, totaling $6,250,000. Lolla's production manager has determined that through negotiations with its suppliers, the firm could reduce their COGS sold down to 70% and thus reduce its cash conversion cycle time.