A Firm Has an Average Age of Inventory of 90

question 11

Multiple Choice

A firm has an average age of inventory of 90 days, an average collection period of 40 days, and an average payment period of 30 days. The firm's operating cycle is ________ days.

• A) 110
• B) 130
• C) 120
• D) 70

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Definitions:

Operating Cycle

The duration of time from the acquisition of inventory to the collection of cash from receivables, reflecting the efficiency of a business's operations.

Inventory Turnover

Inventory Turnover is a ratio that shows how many times a company's inventory is sold and replaced over a period.

Accounts Receivable Collection

The process of recovering funds that are due from customers who have purchased goods or services on credit.

Customer Discount

A reduction in the price of goods or services offered to buyers, often used as a sales promotion strategy.