PRODUCTION ENGINEERING 2 (PENG 201)

TUTORIAL 3 – ENTERPRISD RESOURCE PLANNING SYSTEMS

1. During the past month a firm shows the following metrics:

Average days of accounts receivable 6.75 days

Average daily cost of sales R35 000
Current total value of inventory R300 000
Current value of accounts payable R200 000

Compute the cash-to-cash cycle time. (Round your intermediate calculations and

final answer to 2 decimal places.)

Solution
AR d =6.75 ( given )

I R 300,000
I d= = =8.57
C d R 35,000

AP 200,000
APd= = =5.71
C d 35,000

Cash−¿−cash cycle time= AR d + I d− AP d =6.75+8.57−5.71=9.61days

2. Midwest Baking Products manufactures a variety of dry goods used in industrial and
consumer baking. As the company has grown, it has found it increasingly difficult to
keep accurate tabs on inventory and cash flows. Six months ago, it completed an ERP
implementation project, and the ERP system is running smoothly now. The information
systems department is training various functional areas about how to retrieve reports
from the system, and the result of one report shows the following data from the prior
month (May).

1
 Gross sales R 1 440 000
Cost of goods sold R 720 000
Accounts receivable (end-of-month) R 250 000
Accounts payable (end-of-month) R 150 000
Net assets R 3 754 000
Inventory value (end-of-month) R 470 000

Use this report to calculate the cash-to-cash cycle time. Round interim calculations to 2
decimal places if needed.

Solution

Month of May has 31 days

s 1440000
Average daily sales sd = = =46 451 .61
d 31

AR 250 000
Average days accounts receivable AR d = = =5.38
sd 46 451.61

To calculate inventory cycle time or number of days of inventory, C d, we first convert

cost of goods sold (cost of sales) as a percentage of total sales

COGS 720 000

CS= = =0.50
Total sales 1 440 000

C d=S d ×CS=46 451.61× 0.50=23 225.81

I 470 000
Average days of inventory , I d= = =20.24 days
C d 23 225.81

AP 150 000
Accounts payable cycle time AP d= = =6.46 days
C d 23 225.81

Cash−¿−cash cycle time=inventory days of supply+days of sales outstanding− Average payment period for mate

Cash−¿−cash cycle time= AR d + I d− AP d =5.38+20.24−6.46=1 9.16 days