Question

Suppose that LilyMac Photography has annual sales of $323,000, cost of goods sold of $163,000, average...

Suppose that LilyMac Photography has annual sales of $323,000, cost of goods sold of $163,000, average inventories of $4,300, and average accounts receivable of $24,800. Assume that all of LilyMac’s sales are on credit.

What will be the firm’s operating cycle? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)
  Operating cycle days  
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Homework Answers

Answer #1

Annual Sales = $ 323000, Average Accounst Receivable = $ 24800

Accounst Receivable Turnover Ratio (ARTR) = 323000 / 24800 = 13.0242

Days Sales Outstanding = DSO = 365 / 13.0242 = 28.0245 approximately

Cost of Goods Sold = $ 163000 and Average Inventories = $ 4300

Inventory Turnover Ratio (ITR) = 163000 / 4300 = 37.907

Days Inventory Outstanding = DIO = 365 / 37.907 = 9.6288 approximately

NOTE: Operating Cycle calculation involves subtracting Days Payable Outstanding from the sum of DIO and DSO. Since the question does not have any accounts payable related information, the same is assumed to be zero.

Therefore, Operating Cycle = DSO + DIO = 28.0245 + 9.6288 = 37.6533 or 37.65 days approximately.

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