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The following inventory and sales data are available for the current year for C Company
The following inventory and sales data are available for the current year for C Company. C Company uses a 360-day year when computing ratios.
Net Credit Sales
Cost of Goods Sold
Gross Receivable
Inventory
July 1
320,000
780,000
June 30
P6,205,000
P4,380,000
P350,000
P960,000
C Company's operating cycle for Year 2 is
Group of answer choices
90.06
99.21
23.55
90.95
92.21
Expert Solution
Computation of Company's Operating Cycle for Year 2:
Operating Cycle for Year 2 = Days' Sales of Inventory + Days' Sales Outstanding
Here,
Days' Sales of Inventory = 360/Cost of Goods Sold * Average Inventories = 360/$4,380,000 * (($780,000+$960,000)/2) = 71.51 days
Days' Sales Outstanding = 360/Receivables* Average Account Receivables = 360/$6,205,000 * (($350,000+$320,000)/2) = 19.44 days
Operating Cycle for Year 2 = 71.51 days + 19.44 days = 90.94 days
So, the correct option is 4th "90.95 days". The difference is due to rounding off.
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