Suppose that LilyMac Photography has annual sales of $322,000, cost of goods sol
ID: 2739939 • Letter: S
Question
Suppose that LilyMac Photography has annual sales of $322,000, cost of goods sold of $162,000, average inventories of $4,200, and average accounts receivable of $24,700. Assume that all of LilyMac’s sales are on credit.
What will be the firm’s operating cycle? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)
Suppose that LilyMac Photography has annual sales of $322,000, cost of goods sold of $162,000, average inventories of $4,200, and average accounts receivable of $24,700. Assume that all of LilyMac’s sales are on credit.
Explanation / Answer
Days’ sales outstanding = 365 x Accounts receivables / Sales
= 365 x 24,700 / 322,000
= 28 days
Days’ Inventory outstanding = 365 x average inventory/ cost of goods sold
= 365 x 4,200 / 162,000
= 9.46 days
Operating cycle= Days’ sales outstanding + Days’ Inventory outstanding
= 28 days + 9.46 days
= 37.46 days
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