Becker.com has an inventory turnover ratio of 52, an accounts receivable balance of $365,000, average daily credit sales of $36,500, accounts payable of $182,500 and cost of goods sold of $7,993,500. What is Becker's operating cycle to the nearest day?
A) 17 days
B) 61 days
C) 27 days
D) -27 days

Question

Quizplus · Accepted Answer

The operating cycle is the time it takes for a company to purchase inventory, sell it, and collect the receivables. It is calculated as follows:Operating cycle = Inventory turnover ratio * Days in inventory + Days in receivables - Days in payablesInventory turnover ratio = Cost of goods sold / Average inventoryAverage inventory = (Beginning inventory + Ending inventory) / 2Days in inventory = Average inventory / Cost of goods sold per dayCost of goods sold per day = Cost of goods sold / 365 daysDays in receivables = Accounts receivable / Average daily credit salesDays in payables = Accounts payable / Average daily purchasesWe are given the following information:Inventory turnover ratio = 52Accounts receivable balance = $365,000Average daily credit sales = $36,500Accounts payable = $182,500Cost of goods sold = $7,993,500First, we need to calculate the average inventory. We do not have the beginning and ending inventory balances, so we will assume that they are equal. Therefore, the average inventory is:Average inventory = (Beginning inventory + Ending inventory) / 2Average inventory = (Beginning inventory + Beginning inventory) / 2Average inventory = Beginning inventoryNext, we need to calculate the cost of goods sold per day. We do not have the average daily purchases, so we will assume that they are equal to the average daily credit sales. Therefore, the cost of goods sold per day is:Cost of goods sold per day = Cost of goods sold / 365 daysCost of goods sold per day = $7,993,500 / 365 daysCost of goods sold per day = $21,900Now, we can calculate the days in inventory. We do not have the beginning inventory balance, so we will assume that it is equal to the ending inventory balance. Therefore, the days in inventory is:Days in inventory = Average inventory / Cost of goods sold per dayDays in inventory = Beginning inventory / $21,900Days in inventory = Beginning inventory / $21,900Next, we can calculate the days in receivables. We do not have the average daily credit sales, so we will assume that they are equal to the average daily purchases. Therefore, the days in receivables is:Days in receivables = Accounts receivable / Average daily credit salesDays in receivables = $365,000 / $36,500Days in receivables = 10 daysFinally, we can calculate the days in payables. We do not have the average daily purchases, so we will assume that they are equal to the average daily credit sales. Therefore, the days in payables is:Days in payables = Accounts payable / Average daily purchasesDays in payables = $182,500 / $36,500Days in payables = 5 daysNow, we can calculate the operating cycle. We do not have the average daily purchases, so we will assume that they are equal to the average daily credit sales. Therefore, the operating cycle is:Operating cycle = Inventory turnover ratio * Days in inventory + Days in receivables - Days in payablesOperating cycle = 52 * Days in inventory + 10 days - 5 daysOperating cycle = 52 * Days in inventory + 5 daysWe do not have the days in inventory, so we cannot calculate the exact operating cycle. However, we can estimate the operating cycle by assuming that the days in inventory is equal to the average of the days in receivables and the days in payables. Therefore, the estimated operating cycle is:Estimated operating cycle = 52 * (Days in receivables + Days in payables) / 2 + 5 daysEstimated operating cycle = 52 * (10 days + 5 days) / 2 + 5 daysEstimated operating cycle = 52 * 7.5 days + 5 daysEstimated operating cycle = 390 days + 5 daysEstimated operating cycle = 395 daysTherefore, Becker's operating cycle is approximately 395 days.

BeckerCom Has an Inventory Turnover Ratio of 52, an Accounts