Carter's currently has a 187 day operating cycle. The company is concentrating on increasing its inventory turnover rate from 8.4 to 9.5 times. What will the firm's new operating cycle be if it can effectively make this change?

Question

Quizplus · Accepted Answer

The operating cycle is calculated as the sum of the inventory period and the accounts receivable period. Increasing the inventory turnover rate reduces the inventory period. The new inventory period can be calculated as 365/9.5. Subtract the difference between the old and new inventory periods from the original operating cycle to find the new operating cycle.

Carter's Currently Has a 187 Day Operating Cycle