The following information is available for Blankenship Company for the most recent year.

What was Blankenship's operating cycle for the most recent year? (Round to the nearest whole day. )
A)30 days
B)50 days
C)80 days
D)120 days

Question

The following information is available for Blankenship Company for the most recent year.

What was Blankenship's operating cycle for the most recent year? (Round to the nearest whole day. )
A)30 days 
B)50 days 
C)80 days 
D)120 days

Quizplus · Accepted Answer

The length of the operating cycle is the average time it takes a business to convert inventory to accounts receivable plus the time it takes to convert accounts receivable into cash.
Accounts receivable turnover ratio = Sales of $1,100,000 ÷ Net accounts receivable of $90,000 = 12.22
Average number of days to collect accounts receivable = 365 ÷ 12.22 = 30 days
Inventory turnover = $760,000 cost of goods sold ÷ $105,000 of inventory = 7.24
Average number of days to sell inventory = 365 days ÷ 7.24= 50 days
Operating cycle = Average number of days to collect accounts receivable of 30 days + Average number of days to sell inventory of 50 days = 80 days

The Following Information Is Available for Blankenship Company for the Most