Louie Corporation has provided the following data:
|Year 2||Year 1|
|Sales, on account||$1,340,000|
|Cost of goods sold||$860,000|
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
The operating cycle of a business refers to the average amount of time that a business requires in order to acquire goods, sell their inventory, and collect cash on sales made on credit. A shorter operating cycle is desirable as this indicates that the business is operating efficiently.
Answer and Explanation: 1
- Operating Cycle = Days' Sales in Inventory + Days' Sales Outstanding
- Operating Cycle = (Average Inventory / Cost of Goods Sold x 365 days) + (Average...
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fromChapter 22 / Lesson 42
In this lesson, we'll learn about managing the operating cycle, its components, how to calculate it, and how accounting is used to determine the costs associated with your operating cycle.