Burdick Corporation has provided the following financial data from its balance sheet:
$\begin{array}{lrr}&\text { Year 2 } & \text { Year 1 } \
\text { Accounts receivable, net}&\$ 266,000 & \$ 250,000 \
\text { Inventory }&\$ 162,000 & \$ 190,000 \
\text {Total assets }&\$ 1,415,000 & \$ 1,390,000 \
\text {Total stockholders' equity }&\$ 991,000 & \$ 970,000
\end{array}$ Sales (all on account) in Year 2 amounted to $1,410,000 and the cost of goods sold was $860,000.
-The company's operating cycle for Year 2 is closest to:
A) 10.4 days
B) 79.5 days
C) 141.3 days
D) 72.2 days

Question

Burdick Corporation has provided the following financial data from its balance sheet:
 $\begin{array}{lrr}&\text { Year 2 } & \text { Year 1 } \
\text { Accounts receivable, net}&\$ 266,000 & \$ 250,000 \
\text { Inventory  }&\$ 162,000 & \$ 190,000 \
\text {Total assets  }&\$ 1,415,000 & \$ 1,390,000 \
\text {Total stockholders' equity }&\$ 991,000 & \$ 970,000
\end{array}$ Sales (all on account) in Year 2 amounted to $1,410,000 and the cost of goods sold was $860,000.
-The company's operating cycle for Year 2 is closest to:
A) 10.4 days
B) 79.5 days
C) 141.3 days
D) 72.2 days

Quizplus · Accepted Answer

The operating cycle is calculated as the sum of the days sales outstanding (DSO) and the days inventory outstanding (DIO). DSO = (Average Accounts Receivable / Sales) * 365 = ((266,000 + 250,000) / 2) / 1,410,000 * 365 = 66.8 days. DIO = (Average Inventory / Cost of Goods Sold) * 365 = ((162,000 + 190,000) / 2) / 860,000 * 365 = 74.5 days. Operating Cycle = DSO + DIO = 66.8 + 74.5 = 141.3 days.

Burdick Corporation Has Provided the Following Financial Data from Its