Using the information provided,what is the length of the production cycle for the firm? Perfect Purchase Electronics
Selected Income Statement Items,2014
Cash Sales $1,500,000
Credit Sales $7,500,000
Total Sales $9,000,000
COGS $6,000,000
Perfect Purchase Electronics
Selected Balance Sheet Accounts
12/31/2014 12/31/2013 Change
Accounts Receivable $270,000 $240,000 $30,000
Inventory $125,000 $100,000 $25,000
Accounts Payable $110,000 $90,000 $20,000
A)6.08 days
B)7.60 days
C)53.33 days
D)6.84 days

Question

Quizplus · Accepted Answer

To calculate the length of the production cycle, we need to use the following formula:

Production cycle = (Average inventory / Cost of goods sold) x Number of days in the period

First, we need to calculate the average inventory:

Average inventory = (Beginning inventory + Ending inventory) / 2 
Average inventory = ($100,000 + $125,000) / 2 
Average inventory = $112,500

Next, we need to calculate the cost of goods sold (COGS) from the income statement:

COGS = $6,000,000

Finally, we need to determine the number of days in the period. Since the information provided only includes the year-end balances, we will assume a 365-day period:

Number of days = 365

Now, we can plug in the values and solve for the production cycle:

Production cycle = ($112,500 / $6,000,000) x 365 
Production cycle = 0.01875 x 365 
Production cycle = 6.84 days

Therefore, the length of the production cycle for the firm is 6.84 days. The best choice is D.

Using the Information Provided,what Is the Length of the Production