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?

Answer 1

Answer:

a. Operating cycle is 50 days

b. Turn 7.30 times in a year

Explanation:

The computation of the short term operating cycle is shown below:

= Average production process time + Average finished goods time + Average account receivable time - purchase from suppliers time

= 40 days + 15 days + 35 days - 40 days

= 50 days

And, the cycle would turn over in a year by 7.30 times which is computed by dividing the total number of days in a year by operating cycle

In mathematically,

= 365 days ÷ 50 days

= 7.30 times