Suppose that LilyMac Photography has annual sales of $218,000, cost of goods sold of $123,000, average inventories of $1,250, and average accounts receivable of $22,000. Assuming that all of LilyMac's sales are on credit, what will be the firm's operating cycle?
A) 40.54 days
B) 45.13 days
C) 41.16 days
D) 37.82 days

Question

Quizplus · Accepted Answer

The operating cycle is the time it takes for a company to purchase inventory, sell it, and collect the receivables from the sale. The operating cycle can be calculated using the following formula:Operating cycle = (Average inventory / Cost of goods sold) * 365 days + (Average accounts receivable / Annual sales) * 365 daysPlugging in the given values, we get:Operating cycle = ((1,250 / 123,000) * 365 days) + ((22,000 / 218,000) * 365 days)= 40.54 daysTherefore, the correct answer is A) 40.54 days.

Suppose That LilyMac Photography Has Annual Sales of $218,000, Cost