A ﬁrm has an inventory turnover rate of 16, a receivables turnover rate of 21 and a payables turnover rate of 11. How long is the operating cycle?

Question

Quizplus · Accepted Answer

Operating cycle = Inventory turnover period + Receivables collection period

Inventory turnover period = 365/Inventory turnover rate = 365/16 = 22.81 days

Receivables collection period = 365/Receivables turnover rate = 365/21 = 17.38 days

Payables payment period = 365/Payables turnover rate = 365/11 = 33.18 days

Operating cycle = Inventory turnover period + Receivables collection period = 22.81 + 17.38 = 40.19 days. Therefore, the best choice is B.

A ﬁRm Has an Inventory Turnover Rate of 16, a Receivables