Question

Calculating Cycles. Consider the following financial statement information for the Chimp Computers Corporations

Item	Beginning		Ending
Inventory	780		950
Accounts receivable	650		770
Accounts payable	750		910
Net Sales		6,000
Cost of goods sold		2,500

Calculate Operating Cycle in days

Calculate Cash cycle in days rounding to second decimal

Answer 1

inventory period = 365*(average inventory/cost of goods sold)

average inventory = (beginning + ending )/2 = (780 + 950)/2 = 865

inventory period, I = 365*(average inventory/cost of goods sold) = 365*(865/2500) = 126.29 days

Average accounts receivable =  (beginning + ending )/2 = (650+770)/2 = 710

accounts receivable period , AR= 365*(Average accounts receivable /Net sales ) = 365*(710/6000) = 43.19166667 days

average accounts payable , =  (beginning + ending )/2 = (750+910)/2 = 830

accounts payable period , AP= 365*(average accounts payable/cost of goods sold) = 365*(830/2500) = 121.18 days

operating cycle = I + AR = 126.29 + 43.19166667 = 169.4816667 or 169.48 ( rounding off to 2 decimal places)

Cash cycle = operating cycle - AP = 169.4816667 -121.18 = 48.30166667 or 48.30 ( rounding off to 2 decimal places)