Burdick Corporation has provided the following financial data from its balance sheet: 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:

Question

Burdick Corporation has provided the following financial data from its balance sheet:  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:

Quizplus · Accepted Answer

Inventory turnover = Cost of goods sold ÷ Average inventory*
= $860,000 ÷ $176,000 = 4.89 (rounded)
*Average inventory =
($162,000 + $190,000)÷ 2 = $176,000
Average sale period = 365 days ÷ Inventory turnover
= 365 days ÷ 4.89 = 74.6 days (rounded)
Accounts receivable turnover = Sales on account ÷ Average accounts receivable*
= $1,410,000 ÷ $258,000 = 5.47 (rounded)
*Average accounts receivable =
($266,000 + $250,000)÷ 2 = $258,000
Average collection period = 365 days ÷ Accounts receivable turnover
= 365 days ÷ 5.47 = 66.7 days (rounded)
Operating cycle = Average sale period + Average collection period
= 74.6 days + 66.7 days = 141.3 days

Burdick Corporation Has Provided the Following Financial Data from Its