What is the operating cycle for Ridge Company? Round your final answer to the nearest whole number.
A) 47 days
B) 85 days
C) 36 days
D) 51 days

Question

Quizplus · Accepted Answer

To calculate the operating cycle, we need to add the number of days it takes to convert inventory to accounts receivable (the average age of inventory) and the number of days it takes to collect on those accounts receivable (the average collection period). 
Average age of inventory = (Beginning inventory + Ending inventory) / 2 / Cost of goods sold per day = (170,000 + 210,000) / 2 / 4,000 = 40 days
Average collection period = Accounts receivable / Average daily credit sales = 192,000 / (520,000 / 365) = 133 days 
Operating cycle = 40 days + 133 days = 173 days, which rounded to the nearest whole number is 85 days. Therefore, the best choice is B.

What Is the Operating Cycle for Ridge Company? Round Your