Answer:
Explanation:
The computation of the operating and the cash cycle is shown below:
The operating cycle = Days inventory outstanding + days sale outstanding
where,
Day inventory outstanding = (Beginning inventory + ending inventory) ÷ cost of goods sold × number of days in a year
= ($2,000 + $2,300) ÷ $420,000 × 365 days
= ($4,300 ÷ $420,000) × 365 days
= 3.73 days
Day sale outstanding = (Beginning Accounts receivable + ending Accounts receivable) ÷ Net sales × number of days in a year
= ($2,500 + $0) ÷ $25,000 × 365 days
= ($4,200 ÷ $25,000 ) × 365 days
= 36.5 days
Now put these days to the above formula
So, the days would equal to
= 3.73 days + 36.5 days
= 40.23 days
Now The cash cycle = Days inventory outstanding + days sale outstanding - days payable outstanding
where,
Day payable outstanding = (Beginning Accounts payable + ending Accounts payable) ÷ cost of goods sold × number of days in a year
= ($0 + $1,700) ÷ $420,000 × 365 days
= ($1,700 ÷ $420,000) × 365 days
= 1.47 days
Now put these days to the above formula
So, the days would equal to
= 3.73 days + 36.5 days - 1.47 days
= 38.76 days
