New Oaks Winery requires two months to make wine, two years to age it, one month to bottle it, two months to sell it, and one month to collect the receivable. Its operating cycle is:

Question

Quizplus · Accepted Answer

The operating cycle is the time it takes for a company to convert its investment in inventory back into cash. In this case, it takes New Oaks Winery 2 months to make the wine, 2 years to age it, and 1 month to bottle it, for a total of 25 months. Then, it takes 2 months to sell it and 1 month to collect the receivable, for a total of 28 months. Therefore, the operating cycle for New Oaks Winery is 28 months or 2.33 years, which is closest to answer B, 30 months.

New Oaks Winery Requires Two Months to Make Wine, Two