Question

Pretty Lady Cosmetic Products has an average production process time of 40 days. Finished goods are kept on hand for an average of 15 days before they are sold. Accounts receivable are outstanding an average of 35 days, and the firm receives 40 days of credit on its purchases from suppliers. Estimate the average length of the firm's short-term operating cycle. How often would the cycle turn over in a year? 90 days and 4.06 times 80 days and 4.06 times 70 days and 3.06 times 90 days and 3.06 times

Answer 1

Answer: 90 days and 4.06 times

Explanation:

Short term operating cycle = Average production process time + Days finished goods kept on hand + Days Accounts receivable outstanding]

= 40 + 15 + 35

= 90 days

Assuming a 365 day year, the cycle will turnover;

= 365/90

= 4.0556

= 4.06 times