In the month of January, Reliance® Auto sold 60 vehicles and had account receivable of $160,000.00. If a vehicle costs $40,000, account payable is $240,000 and the cost of sales is 72%, and the current value of total inventory is $500,000.00.

Reliance Auto Finance Calculations

Situation

In the month of January, Reliance® Auto sold 60 vehicles and had account receivable of $160,000.00. If a vehicle costs $40,000, account payable is $240,000 and the cost of sales is 72%, and the current value of total inventory is $500,000.00.

Average Daily Sales

            Average daily sales is the mean amount of product value sold over a specified period. It is computed as follows;

where Sd is average daily sales, S is sales, and d is days (Jacobs, Berry, Whyback, & Vollman, 25). To compute average daily sales for the situation above we derive;

Average Days of Accounts Receivable

            Average days of accounts receivable is a metric examining the length of time it takes a business to collect the money it is owed for goods it has already sold. It is computed as follows;

where ARd is the average days of accounts receivable, AR is the accounts receivable, and Sd is average daily sales (Jacobs et. al, 25). To compute the average days of accounts receivable for the situation above we derive;

Average Daily Cost of Sales

            Average daily cost of sales is part of the inventory cycle time and examines the number of days of inventory measured relative to the cost of sales. It is computed as follows;

where Cd is the average daily cost of sales, Sd is average daily sales, and CS is cost of sales measured in percent (Jacobs et. al, 25). To compute the average daily cost of sales for the situation above we derive;

Average Days of Inventory

            The average days of inventory utilizes the average daily of cost of sales result and the current value of inventory in order to calculate the average days of inventory, in which to compute the cash to cash cycle time. It is computed as follows;

where Id is the average days of inventory, I the current value of inventory, and Cd average daily cost of sales (Jacobs et. al., 25). To compute the average days of inventory for the situation above we derive;

Accounts Payable Cycle Time

            The accounts payable cycle time is the third calculation required to determine the cash to cash cycle time and measures the level of accounts payable relative to the cost of sales. It is calculated as follows;

where APd is the average days of accounts payable, AP the accounts payable, and Cd the average daily cost of sales (Jacobs et. al., 25). To compute the accounts payable cycle time for the situation above we derive;

Cash to Cash Cycle Time

            Cash to cash cycle time is a measure of cash flow and a metric that measures the relative efficiency of a supply chain and upon computing results in the number of days between paying for raw materials and getting paid for the product (Jacobs et. al, 22-23). Comprised of three parts; the accounts receivable cycle, the inventory cycle and the accounts payable cycle, it is computed as follows;

cash to cash cycle time = ARd + Id – APd

where ARd is average days of accounts receivable, Id is the average days of inventory, and APd is the average days of accounts payable (Jacobs et. al, 25). To compute the cash to cash cycle time for the situation above we derive;

cash to cash cycle time = 2.07 + 8.97 – 4.31 = 6.73 days

 

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