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?
A) 37.00 days
B) 40.19 days
C) 42.87 days
D) 63.08 days
E) 73.37 days

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 period = 365/11 = 33.18 days.
Operating cycle = Inventory turnover period + Receivables Collection Period = 22.81 + 17.38 = 40.19 days.

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