Louie Corporation has provided the following data: The company's operating cycle for Year 2 is...

Question:

Louie Corporation has provided the following data:

Year 2 Year 1
Accounts Receivable $269,000 $290,000
Inventory $190,000 $160,000
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

Operating Cycle:

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

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  • 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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Operating Cycle in Accounting: Definition & Formula

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Chapter 22 / Lesson 42
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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.


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