Dahn Corporation has provided the following financial data:
Dividends on common stock during Year 2 totaled $1,600. The market price of common stock at the end of Year 2 was $2.37 per share.
-The company's operating cycle for Year 2 is closest to:
A) 66.2 days
B) 16.5 days
C) 95.3 days
D) 45.6 days

Question

Dahn Corporation has provided the following financial data:
   Dividends on common stock during Year 2 totaled $1,600. The market price of common stock at the end of Year 2 was $2.37 per share.
-The company's operating cycle for Year 2 is closest to:
A) 66.2 days 
B) 16.5 days 
C) 95.3 days 
D) 45.6 days

Quizplus · Accepted Answer

Inventory turnover = Cost of goods sold ÷ Average inventory*
= $850,000 ÷ $140,000 = 6.07 (rounded)
*Average inventory =
($150,000 + $130,000) ÷ 2 = $140,000
Average sale period = 365 days ÷ Inventory turnover
= 365 days ÷ 6.07 = 60.1 days (rounded)
Accounts receivable turnover = Sales on account ÷ Average accounts receivable*
= $1,370,000 ÷ $132,000 = 10.38 (rounded)
*Average accounts receivable =
($134,000 + $130,000) ÷ 2 = $132,000
Average collection period = 365 days ÷ Accounts receivable turnover
= 365 days ÷ 10.38 = 35.2 days (rounded)
Operating cycle = Average sale period + Average collection period
= 60.1 days + 35.2 days = 95.3 days

Dahn Corporation Has Provided the Following Financial Data