Question

Interior Designs has a days sales in inventory of 51 days, an average payment period of 38 days, and an average collection period of 32 days. Management is considering an offer from their suppliers to pay within 10 days and receive a 2 percent discount. If the new discount is taken, the average payment period is expected to decline by 26 days. If the new discount is taken, the operating cycle will be _____ days. Group of answer choices

Answer 1

Answer:

Operating cycle will be 83 days

Explanation:

The operating cycle is the average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods.

The original operating cycle is 51 + 32 = 83 days.

The operating cycle will not change because the average payment period does not affect the operating cycle, it only affect the cash cycle.