Reference no: EM132816091

Costco carries an average inventory of $2,000,000. Its annual sales are $15 million and its gross profit margin is 60%. The receivables conversion period is three-quarter of its inventory conversion period. Costco's trade terms with its suppliers is net 60 and it always pays on time (never early and never late). Costco's new CFO wants to improve the cash conversion cycle by 30 days, based on a 365-day year. His strategy is to reduce the amount of inventory to $1,300,000, but he thinks this move will reduce the annual sales by 20%. The gross profit margin and accounts payable level will remain the same as before. By how much must the firm accounts receivable level change in order to meet its goal of a 30-day reduction in the cash conversion cycle? Is it an increase or decrease in accounts receivable level?