Natcher Corporation's accounts receivable at the end of Year 2 was $126,000 and its accounts receivable at the end of Year 1 was $130,000. The company's inventory at the end of Year 2 was $127,000 and its inventory at the end of Year 1 was $120,000. Sales, all on account, amounted to $1,380,000 in Year 2. Cost of goods sold amounted to $800,000 in Year 2. The company's operating cycle for Year 2 is closest to: (Round your intermediate calculations to 2 decimal places.)
A) 44.7 days
B) 17.3 days
C) 62.8 days
D) 90.2 days

Question

Quizplus · Accepted Answer

The operating cycle is calculated as the sum of the average collection period and the average inventory period. The average collection period is calculated as (Average Accounts Receivable / Sales) * 365, and the average inventory period is (Average Inventory / Cost of Goods Sold) * 365. For Year 2, the average accounts receivable is ($126,000 + $130,000) / 2 = $128,000, and the average inventory is ($127,000 + $120,000) / 2 = $123,500. The average collection period is ($128,000 / $1,380,000) * 365 ≈ 33.84 days, and the average inventory period is ($123,500 / $800,000) * 365 ≈ 56.34 days. Adding these gives an operating cycle of approximately 90.2 days.

Natcher Corporation's Accounts Receivable at the End of Year 2