A What Is the Operating Cycle for White Bluffs, Inc

question 28

Essay

A. What is the operating cycle for White Bluffs, Inc. if all sales are on credit?
B. If you knew that Accounts Receivables were $3,250 the prior year, what effect would this have on your estimate of the operating cycle. Show and explain why.
A. Inventory Turnover = CGS/Inventory = 28461/7280 = 3.909.
Days in Inventory = 365/3.909 = 93.37 days.
Accounts Receivable Turnover = Sales/A/R = 44,466/3779 = 11.767.
Days in Receivables = 365/11.767 = 31.02.
Operating Cycle = Days in Inventory + Days in Receivable = 93.37 + 31.02 = 124.39.
B. Average Accounts Receivable = 3779 + 3250/2 = 3514.50
A/R Turnover = 44,466/3514.50 = 12.652.
Days in Receivables = 365/12.652 = 28.85.
Operating Cycle = 93.37 + 28.85 = 122.22.
- Operating Cycle falls because of a smaller average tied up in receivables to generate sales.

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