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Last year, Wilson's had credit sales of $927,000 and cost of goods sold of $762,000
Last year, Wilson's had credit sales of $927,000 and cost of goods sold of $762,000. The beginning of the year inventory was $138,000 and the end of the year inventory was $154,300. If the accounts receivables average $87,400, what is the operating cycle?
Expert Solution
Computation of the operating cycle:-
Average inventory = (Beginning inventory + Ending inventory) / 2
= ($138,000 + $154,300) / 2
= $292,300 / 2
= $146,150
Days sales in inventory = Average inventory * 365 / Cost of goods sold
= $146,150 * 365 / $762,000
= 70.01 days
Average collection period = Average accounts receivable * 365 / Credit sales
= $87,400 * 365 / $927,000
= 34.41 days
Operating cycle = Days sales in inventory + Average collection period
= 70.01 + 34.41
= 104.42 days
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