Trend Foods distributes its products to more than 100 restaurants and delis. The company's collection period is 32 days, and it keeps its inventory for 10 days. What is Trend's operating cycle?
A) 22 days
B) 32 days
C) 42 days
D) None of the above

Question

Quizplus · Accepted Answer

Operating cycle is the time it takes for a company to convert its inventory and accounts receivable into cash.

Operating cycle = Inventory conversion period + Accounts receivable conversion period

Inventory conversion period = Number of days inventory is held / cost of goods sold per day 
= 10 days / 365 days * cost of goods sold

Accounts receivable conversion period = Number of days the company takes to collect payment from customers 
= Collection period

Therefore, Trend's operating cycle = 10/365 * cost of goods sold + 32 days

Since we do not have the cost of goods sold information, we cannot calculate the operating cycle exactly, but we know it will be greater than 32 days. The only answer choice that is greater than 32 is C, which is 42 days.

Trend Foods Distributes Its Products to More Than 100 Restaurants