Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 31

An organization requires an average of 58 days to convert raw materials into finished products to sell. An average of 42 additional days is required to collect receivables. If the organization takes an average of 10 days to pay for the raw materials, how long is its total cash conversion cycle?

Answer options

• A. 26 days.
• B. 90 days.
• C. 100 days.
• D. 110 days.

Correct answer: B

Explanation

The cash conversion cycle is calculated by adding the time to convert raw materials into finished goods (58 days) and the time to collect receivables (42 days), then subtracting the days taken to pay for raw materials (10 days). Therefore, the total is 58 + 42 - 10 = 90 days. The other options do not reflect this correct calculation.