Melons 'R' Us, a national chain of fruit stands, has an inventory period of 65 days, an accounts payable period of 30 days, and an accounts receivable period of 24 days. The CFO wants to
Implement a discount plan in order to reduce the receivables period to 18 days. What will happen to
The ﬁrm's operating cycle?
A) It will fall from 89 days to 83 days.
B) It will fall from 59 days to 53 days.
C) It will be unaffected by the change in policy.
D) It will rise from 85 days to 91 days.
E) It will rise from 81 days to 87 days.

Question

Quizplus · Accepted Answer

The operating cycle is calculated as Inventory Period + Accounts Receivable Period. Therefore, the operating cycle for Melons 'R' Us is currently 65 + 24 = 89 days. If the accounts receivable period is reduced to 18 days, then the new operating cycle will be 65 + 18 = 83 days. Therefore, the operating cycle will fall from 89 days to 83 days.

Melons 'R' Us, a National Chain of Fruit Stands, Has