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Tutorial 3 Solutions - ERPs

The first example uses metrics like average days of accounts receivable, average daily cost of sales, inventory value and accounts payable to calculate a cash-to-cash cycle time of 9.61 days for a firm. The second example uses data from an ERP system like gross sales, cost of goods sold, accounts receivable, accounts payable and inventory value from a baking company to calculate their cash-to-cash cycle time as 19.16 days. Both examples show the calculations and metrics used to determine the cash-to-cash cycle times.

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Khathutshelo Kharivhe
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78 views2 pages

Tutorial 3 Solutions - ERPs

The first example uses metrics like average days of accounts receivable, average daily cost of sales, inventory value and accounts payable to calculate a cash-to-cash cycle time of 9.61 days for a firm. The second example uses data from an ERP system like gross sales, cost of goods sold, accounts receivable, accounts payable and inventory value from a baking company to calculate their cash-to-cash cycle time as 19.16 days. Both examples show the calculations and metrics used to determine the cash-to-cash cycle times.

Uploaded by

Khathutshelo Kharivhe
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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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

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