Kar's currently has a 208-day operating cycle.The company is concentrating on increasing its inventory turnover rate from 7.9 to 8.2 times.What will the firm's new operating cycle be if it can effectively make this change?

Question

Quizplus · Accepted Answer

The operating cycle is calculated as the sum of the inventory period and the receivables period. Increasing the inventory turnover rate decreases the inventory period. The inventory period is calculated as 365 divided by the inventory turnover rate. Initially, the inventory period is 365/7.9 = 46.20 days. After the change, it becomes 365/8.2 = 44.51 days. The decrease in the inventory period reduces the operating cycle from 208 days to 206.31 days.

Kar's Currently Has a 208-Day Operating Cycle