The Operating Cycle

question 47

Multiple Choice

The operating cycle

• A) begins when a firm receives the raw materials that would be used to produce the goods that the firm manufactures.
• B) begins when a firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales.
• C) cannot be measured without knowing the days' payables outstanding.
• D) does not end with the finished goods being sold to customers and the cash collected on the sales; but when you take into account the time taken by the firm to pay for its purchases.

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Definitions:

Variable Costs

Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.

Breakeven Volume

The quantity of goods or services that must be sold to cover fixed and variable costs, resulting in no profit or loss.

Units

A measure of quantity or amount used in the context of production, inventory, or sales within various sectors.

Contribution Margin

The amount by which sales revenue exceeds variable costs of production, contributing to the coverage of fixed costs and profit generation.