Question 1

Orion Manufacturing is analyzing its working capital efficiency. For the current year, Orion reported the following average balances and income statement amounts:

- Average Inventory: $800,000
- Average Accounts Receivable: $600,000
- Average Accounts Payable: $450,000
- Net Sales: $7,300,000
- Cost of Goods Sold: $4,380,000
- Purchases: $4,500,000

Assume a 365-day year. What is Orion's Cash Conversion Cycle (CCC)?

Accepted Answer

Calculate Days Inventory Outstanding (DIO), Days Sales Outstanding (DSO), and Days Payable Outstanding (DPO) separately. Then apply the formula: CCC = DIO + DSO - DPO.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Adding DPO instead of subtracting it; using Sales instead of COGS for DIO; using COGS instead of Purchases for DPO.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 5

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