Suppose that Tucker Industries has annual sales of $5 million, cost of goods sold of $2.78 million, average inventories of $1,125,000, and average accounts receivable of $500,000. Assuming that all of Tucker's sales are on credit, what will be the firm's operating cycle?
A) 147.71
B) 111.21
C) 184.21
D) 36.5

Question

Quizplus · Accepted Answer

The operating cycle is the sum of the inventory period and the accounts receivable period. Inventory period = (Average Inventories / Cost of Goods Sold) * 365 = ($1,125,000 / $2,780,000) * 365 = 148.21 days. Accounts Receivable Period = (Average Accounts Receivable / Annual Sales) * 365 = ($500,000 / $5,000,000) * 365 = 36 days. Operating Cycle = Inventory Period + Accounts Receivable Period = 148.21 + 36 = 184.21 days.

Suppose That Tucker Industries Has Annual Sales of $5 Million