Suppose that Dunn Industries has annual sales of $2.5 million, cost of goods sold of $1,850,000, average inventories of $1,900,000, and average accounts receivable of $660,000. Assuming that all of Dunn's sales are on credit, what will be the firm's operating cycle?
A) 471.22 days
B) 374.86 days
C) 418.61 days
D) 515.39 days

Question

Quizplus · Accepted Answer

The operating cycle is calculated as the sum of the inventory period and the receivables period. The inventory period is (Average Inventory / Cost of Goods Sold) * 365 = (1,900,000 / 1,850,000) * 365 = 374.86 days. The receivables period is (Average Accounts Receivable / Sales) * 365 = (660,000 / 2,500,000) * 365 = 96.36 days. Adding these gives 471.22 days.

Suppose That Dunn Industries Has Annual Sales of $2