Home
/
Math
/
9) Which of the following actions would be likely to shorten the cash conversion cycle? A. Change the credit terms offered to customers from 3/10 net 30 to 1/10 net 50. B. Adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days C. Adopt a new manufacturing process that saves some labor costs but slows down the conversion of raw materials to finished goods from 10 days to 20 days. D. Begin to take discounts on inventory purchases; we buy on terms of 2/10 net 30.

Question

9) Which of the following actions would be likely to shorten the cash conversion cycle? A. Change the credit terms offered to customers from 3/10 net 30 to 1/10 net 50. B. Adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days C. Adopt a new manufacturing process that saves some labor costs but slows down the conversion of raw materials to finished goods from 10 days to 20 days. D. Begin to take discounts on inventory purchases; we buy on terms of 2/10 net 30.

9) Which of the following actions would be likely to shorten the cash conversion cycle? A. Change the credit terms offered to customers from 3/10 net 30 to 1/10 net 50. B. Adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days C. Adopt a new manufacturing process that saves some labor costs but slows down the conversion of raw materials to finished goods from 10 days to 20 days. D. Begin to take discounts on inventory purchases; we buy on terms of 2/10 net 30.

expert verifiedVerification of experts

Answer

4.1150 Voting
avatar
ReubenMaster · Tutor for 5 years

Answer

<p> B</p>

Explain

<p> The cash conversion cycle (CCC) is a key financial metric that measures the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. It is calculated as the sum of the inventory conversion period (the time to turn raw materials into finished goods), the receivables conversion period (the time to collect cash from customers), and the payables deferral period (the time taken to pay suppliers). <br /><br />To analyze the given options:<br />A. Changing credit terms from 3/10 net 30 to 1/10 net 50 would likely increase the receivables conversion period because customers would be incentivized to pay later. This would lengthen the CCC.<br />B. Adopting a manufacturing process that reduces the time to convert raw materials to finished goods from 20 days to 10 days would shorten the inventory conversion period, thereby reducing the CCC.<br />C. A process that slows down the conversion of raw materials to finished goods from 10 days to 20 days would increase the inventory conversion period, lengthening the CCC.<br />D. Taking discounts on inventory purchases (2/10 net 30) does not directly affect the CCC. While it may improve cash flow due to discounts, it doesn't change the time frame of converting inventory into sales or the collection of receivables.<br /><br />Therefore, the action most likely to shorten the cash conversion cycle is the one that reduces the time taken in any of the cycle's stages. In this case, option B, which speeds up the manufacturing process, directly shortens the inventory conversion period and thus the overall CCC.</p>
Click to rate:

Hot Questions

More x