Suppose that Tucker Industries has annual sales of $6.50 million, cost of goods sold of $2.93...

Question:

Suppose that Tucker Industries has annual sales of $6.50 million, cost of goods sold of $2.93 million, average inventories of $1,200,000, and average accounts receivable of $650,000. Assuming that all of Tucker's sales are on credit, what will be the firm's operating cycle?

Average Inventories:

Average inventories refer to the addition of opening balance and closing balance of inventory divided by 2. Inventories are inclusive of the work-in-progress, raw components, and the finished commodity. These are classified as current assets.

Answer and Explanation: 1

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{eq}\begin{align*} {\rm\text{Operating cycle}}\, &= \,{\rm\text{Days inventory outstanding}}\, + \,{\rm\text{Days sales outstanding}}\\ &=...

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Operating Cycle in Accounting: Definition & Formula

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Chapter 22 / Lesson 42
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An operating cycle consists of lead time, production time, sales time, delivery time, and cash-collection time. Learn the definitions of the parts of the operating cycle, how long the operation cycles are for different industries, and the formula used for calculating the operating cycle in accounting.


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