# Case Study, Casa de Diseno

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Case Study, Casa de Diseno A. M. Bonin
June 20, 2014

Assignment 3.3: Case Study, Casa de Diseno
Requirement A
What are Casa de Diseno’s existing operating cycle (OC), cash conversion cycle (CCC), and resource investment need?
Operating Cycle = average age of inventory + average collection period.
OC = AAI + ACP
110 days + 75 = 185 days.
Cash Conversion Cycle (CCC) = OC –average payment period (APP). CCC = OC – APP 185 days – 30 days = 155 days.
Resource Investment needed = (Annual operating cycle investments ÷ 365) x CCC (\$26,500,000 ÷ 365) x 155 = \$11,253,424.657
Casa de Diseno’s OC, CCC and resource investment need is as follows:
OC = 185 days
CCC = 155 days
Resource Investment need = \$11,253,425. (Gitman & Zutter 2012, pp. 604-606)
Requirement B
Industry OC = 83 days + 75 days = 158 days
Industry CCC = 158 days – 39 days= 119 days
Industry Resource needed = (\$26,500,000 ÷ 365) x119 = \$8,639,726
Industry OC is 158 days.
Industry CCC is 119 days.
Industry Resource need is \$8,639,726. (Gitman & Zutter 2012, pp. 604-606)
Requirement C Casa de Diseno Firm Resource Need \$11,253,425 Less: Industry resource needed \$ 8,639,726 \$2,613,699
Cost of inefficiency = \$2,613,699 x 15% annual interest = \$392,054.85
The cost of Casa de Diseno’s operational inefficiency is \$392,055. (Gitman & Zutter 2012, pp. 604-606)
Requirement D 1. Offering 3/10, net 60:
Reduction in collection period = 75 days x (1 – 0.4) = 5 days
OC = 83 days + 45 days = 128 days
CCC = 128 days – 39 days = 89 days.
Resources needed = (\$26,500,000 ÷ 365) x 89 days = \$6,461,643.84
Resources needed = \$6,461,644
Additional savings = \$8,639,726 - \$6,461,644 = \$2,178,082
\$2,178,082 x 15% = \$326,712.30
Additional savings result is \$326,712. 2. Reduction in sales = \$40,000,000 x .45 x .03 = \$540,000. 3. Average investment in...

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