Coronation Computers Sales and Service has annual sales revenue of $2,628,000, cost of goods sold of $1,182,600, an opening inventory of $340,000, a closing inventory of $308,000, and accounts receivable of $345,600. If it purchases all of its inventory on credit and carries accounts payable of $194,400, what is the length of the operating cash cycle (OOC) for the business?

Question

Quizplus · Accepted Answer

The operating cash cycle is calculated as Days Inventory Outstanding (DIO) plus Days Sales Outstanding (DSO) minus Days Payable Outstanding (DPO). DIO = (Opening Inventory + Closing Inventory) / 2 / Cost of Goods Sold * 365 = 102. DSO = Accounts Receivable / Sales Revenue * 365 = 48. DPO = Accounts Payable / Cost of Goods Sold * 365 = 62. OOC = 102 + 48 - 62 = 88 days.

Coronation Computers Sales and Service Has Annual Sales Revenue of $2,628,000