Louie Corporation has provided the following data: The company's operating cycle for Year 2 is closest to:
A)81.0 days
B)150.5 days
C)79.2 days
D)9.7 days

Question

Louie Corporation has provided the following data:  The company's operating cycle for Year 2 is closest to:
A)81.0 days 
B)150.5 days 
C)79.2 days 
D)9.7 days

Quizplus · Accepted Answer

Inventory turnover = Cost of goods sold ÷ Average inventory*
= $860,000 ÷ $175,000 = 4.91 (rounded)
*Average inventory =
($190,000 + $160,000)÷ 2 = $175,000
Average sale period = 365 days ÷ Inventory turnover
= 365 days ÷ 4.91 = 74.3 days (rounded)
Accounts receivable turnover = Sales on account ÷ Average accounts receivable*
= $1,340,000 ÷ $279,500 = 4.79 (rounded)
*Average accounts receivable =
($269,000 + $290,000)÷ 2 = $279,500
Average collection period = 365 days ÷ Accounts receivable turnover
= 365 days ÷ 4.79 = 76.2 days (rounded)
Operating cycle = Average sale period + Average collection period
= 74.3 days + 76.2 days = 150.5 days

Louie Corporation Has Provided the Following Data: the Company's