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Casa de Diseno

In: Business and Management

Submitted By lilylovespell99
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Integrative Case 7 a.
Operating cycle (OC) = average age of inventory + average collection period = 110 days + 75 days = 185 days Cash conversion cycle = OC - average payment period (CCC) = 185 days - 30 days = 155 days Resources needed = cost of operating cycle investment x CCC 365 = $ 26,500,000 x 155 365 = $11,253,424.66 b.
Industry OC = 83 days + 75 days = 158 days
Industry CCC = 158 days - 39 days = 119 days
Industry resources needed = $26,500,000 x 119 365 = $8,639,726.03 c.
Casa de Diseno's cost of operational inefficiency :
Needed resources $11,253,424.66
Less: needed industry resources $8,639,726.03 $2,613,698.63 x 15% $392,054.79
d.
1. Offering 3/10 net 60 :
Average Collection period = 75 days x (100%-40%)
(average collection could be reduced by 40%) = 45 days
Operating cycle = 83 days + 45 days = 128 days Cash conversion cycle = 128 days - 29 days = 89 days Resources needed = $ 26,500,000 x 89 365 = $6,461,643.84 Additional saving = $2,178,082.19 = $326,712.33 2. Reduction in revenues as a result of the discount : = $40,000 x 45% x 3% = 540,000.00 3. Reduction in investment in accounts receivable and annual saving
Average investment in accounts receivable with cash discount = ($40,000,000 x 80%) (365/45) (New average coolection period is 45 days) = 3,945,205.48
Average investment in accounts receivable without cash discount = ($40,000,000 x 80%) (365/75) = 6,575,342.47 Reduction in...

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