Louie Corporation has provided the following data: $\begin{array} { l r l }
& { \text { Year 2 } } & \text { Year 1 } \
\text { Accounts receivable} & \$ 269,000 & \$ 290,000 \
\text { Inventory } & \$ 190,000 & \$ 160,000 \
\text { Sales, on account }& \$ 1,340,000 & \
\text { Cost of goods sold } & \$ 860,000 &
\end{array}$ The company's operating cycle for Year 2 is closest to:
A)81.0 days
B)150.5 days
C)79.2 days
D)9.7 days

Question

Louie Corporation has provided the following data: $\begin{array} { l r l } 
& { \text { Year 2 } } & \text { Year 1 } \
\text { Accounts receivable} & \$ 269,000 & \$ 290,000 \
\text { Inventory } & \$ 190,000 & \$ 160,000 \
\text { Sales, on account }& \$ 1,340,000 & \
\text { Cost of goods sold } & \$ 860,000 &
\end{array}$ The company's operating cycle for Year 2 is closest to:
A)81.0 days
B)150.5 days
C)79.2 days
D)9.7 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 = ((269,000 + 290,000) / 2) / 1,340,000 * 365 = 75.5 days. DIO = (Average Inventory / Cost of Goods Sold) * 365 = ((190,000 + 160,000) / 2) / 860,000 * 365 = 75.0 days. Operating Cycle = DSO + DIO = 75.5 + 75.0 = 150.5 days.

Louie Corporation Has Provided the Following Data The Company's Operating Cycle for Year 2 Is Closest To