Jaxson and Sons has an inventory period of 33 days, an accounts payable period of 41 days and an accounts receivable period of 27 days. Management is considering offering a 5% discount if its credit customers pay for their purchases within 10 days. If the new discount is offered the accounts receivable period is expected to decline by 13 days. If the new discount is offered, the operating cycle will decrease from _____ days to _____ days.

Question

Quizplus · Accepted Answer

The operating cycle is calculated as the inventory period plus the accounts receivable period. Initially, it is 33 days (inventory period) + 27 days (accounts receivable period) = 60 days. With the new discount, the accounts receivable period is expected to decline by 13 days, making it 27 - 13 = 14 days. Therefore, the new operating cycle would be 33 days (inventory period) + 14 days (new accounts receivable period) = 47 days.

Jaxson and Sons Has an Inventory Period of 33 Days