Which of the following will increase the operating cycle?
A) The cash cycle decreases by one day but the average payment period increases by two and a half days.
B) The days' sales in inventory decreases by one day but the average collection period increases by two days.
C) COGS stays the same but inventory increases.
D) All of these choices are correct.

Question

Quizplus · Accepted Answer

The operating cycle is the sum of the days' sales in inventory (DSI) and the average collection period (ACP). Choice A increases the operating cycle because extending the payment period increases the cash conversion cycle, indirectly affecting the operating cycle. Choice B directly increases the operating cycle by increasing the ACP. Choice C increases the DSI, which is a part of the operating cycle. Therefore, all choices increase the operating cycle.

Which of the Following Will Increase the Operating Cycle