Answer: Operating cycle = 84.70 days
Cash cycle = 41 days
Explanation:
Beginning inventory = $11,100
Ending Inventory = $12,100
Average inventory = ($11100 + $12100)/2 = 11600
Average Accounts receivable = (6,100 + 6,400)/2 = 6250
Average Accounts payable = (8,300 + 8,700)/2 = 8500
Day sales in inventory = Average inventory × 365 / Cost of goods sold
= 11600 × 365 / 71000 = 59.63 days
Average collection period = Average receivable × 365 / Credit sales
= 6250 × 365 /91000 = 25.07 days
Average payment period = 43.70 days
Therefore, operating cycle will be:
= Day sales in inventory + Average collection period
= 59.63 days + 25.07 days
= 84.70 days
Cash cycle = Operating cycle - Average payment period
= 84.70 - 43.70
= 41 days
