Why Is the Buyer's Operating Cycle Considered to Be an Appropriate

question 244

Essay

Why is the buyer's operating cycle considered to be an appropriate upper limit for the credit
period? (Be sure to define what the operating cycle is.) Wouldn't the buyer's inventory period be a
better target?

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Definitions:

Job Cost Sheet

A document that records the materials, labor, and manufacturing overhead costs assigned to each individual job in production.

Predetermined Overhead Rate

An established cost allocation rate that assigns expected indirect costs to products or services based on a chosen activity base.

Level of Activity

The volume or scale of operation in a business, often influencing costs and efficiency, such as the number of units produced or sold.

Cost of Unused Capacity

The costs incurred for not utilizing production or service capacity to its fullest potential.