Assume a firm's production process requires an average of 80 days to go from raw materials to finished products and another 40 days before the finished goods are sold. If the accounts receivable cycle is 70 days and the accounts payable cycle is 80 days, what would the operating cycle be?

Question

Business

Christian Merritt

22 January, 08:47

Assume a firm's production process requires an average of 80 days to go from raw materials to finished products and another 40 days before the finished goods are sold. If the accounts receivable cycle is 70 days and the accounts payable cycle is 80 days, what would the operating cycle be?

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Answers (1)

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Jocelyn Richardson · Answer 1

110

Explanation:

The operating cycle is the days for which inventory is held until the time of sale, that is, the days before finished goods are sold and the days in which cash from the sale of inventory is received which is the account receivable cycle.

Therefore, the formula for calculating operating cycle is

Inventory period + account receivable cycle

40 + 70 = 110

The operating cycle is 110