The company's operating cycle for Year 2 is closest to:

A) 66.2 days
B) 16.5 days
C) 95.3 days
D) 45.6 days

Question

The company's operating cycle for Year 2 is closest to:A) 66.2 daysB) 16.5 daysC) 95.3 daysD) 45.6 days

Sarah Alnasser · Accepted Answer

Final Answer : C, Explanation :  The operating cycle is calculated by adding the days inventory outstanding (DIO) with the days sales outstanding (DSO). Given information:DIO = 45 daysDSO = 50.3 daysTherefore, operating cycle = DIO + DSO = 45 + 50.3 = 95.3 days (closest to option C). Inventory turnover = Cost of goods sold ÷ Average inventory*= $850,000 ÷ $140,000 = 6.07 (rounded)*Average inventory =($150,000 + $130,000)÷ 2 = $140,000Average sale period = 365 days ÷ Inventory turnover= 365 days ÷ 6.07 = 60.1 days (rounded)Accounts receivable turnover = Sales on account ÷ Average accounts receivable*= $1,370,000 ÷ $132,000 = 10.38 (rounded)*Average accounts receivable =($134,000 + $130,000)÷ 2 = $132,000Average collection period = 365 days ÷ Accounts receivable turnover= 365 days ÷ 10.38 = 35.2 days (rounded)Operating cycle = Average sale period + Average collection period= 60.1 days + 35.2 days = 95.3 days

The company's operating cycle for Year 2 is closest to:

A) 66.2 days
B) 16.5 days
C) 95.3 days
D) 45.6 days

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