Your firm currently has an operating cycle of 92 days. You are analyzing some operational changes which are expected to decrease the accounts receivable period by 4 days and decrease the inventory period by 5 days. The accounts payable turnover rate is expected to increase from 8 to 9 times per year. If all of these changes are adopted, what will be your firm's new operating cycle?

Question

Quizplus · Accepted Answer

The new operating cycle is calculated by subtracting the decrease in the accounts receivable period (4 days) and the decrease in the inventory period (5 days) from the original operating cycle (92 days). Thus, the new operating cycle is 92 - 4 - 5 = 83 days. The change in accounts payable turnover does not affect the operating cycle.

Your Firm Currently Has an Operating Cycle of 92 Days