Suppose that Mack Industries has annual sales of $10 million, cost of goods sold of $6.5 million, average inventories of $1 million, and average accounts receivable of $600,000. Assuming that all of Mack's sales are on credit, what will be the firm's operating cycle?
A) 34.25
B) 21.9
C) 56.15
D) 78.05

Question

Quizplus · Accepted Answer

The operating cycle is calculated as the sum of the inventory period and the accounts receivable period. The inventory period is (Average Inventory / Cost of Goods Sold) * 365 = ($1,000,000 / $6,500,000) * 365 = 56.15 days. The accounts receivable period is (Average Accounts Receivable / Sales) * 365 = ($600,000 / $10,000,000) * 365 = 21.9 days. Adding these gives an operating cycle of 56.15 + 21.9 = 78.05 days.

Suppose That Mack Industries Has Annual Sales of $10 Million