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 operating cycle is calculated as the sum of the inventory period and the accounts receivable period. The initial operating cycle is 92 days. With the changes, the accounts receivable period decreases by 4 days and the inventory period decreases by 5 days, resulting in a total decrease of 9 days. Therefore, the new operating cycle is 92 - 9 = 83 days.

Your ﬁRm Currently Has an Operating Cycle of 92 Days