Answer:
34 days
Explanation:
Formula
The Operating Cycle formula is as follows:
Operating Cycle = Inventory Period + Accounts Receivable Period
Inventory Period = 365 / Inventory Turnover
Where the formula for Inventory Turnover is:
Inventory Turnover = Cost of Goods Sold / Average Inventory
The Accounts Receivable Period is calculated as follows:
Accounts Receivable Period = 365 / Receivables Turnover
Where the formula for Receivables Turnover is:
Receivables Turnover = Credit Sales / Average Accounts Receivable
Therefore, the detailed formula for Operating Cycle is:
365 / (Cost of Goods Sold / Average Inventory) + 365 /(Credit Sales / Average Accounts Receivable)
Operating Cycle = [365 / (950,000/45,000) + 365 / (2,000,000/90,000)]
Operating Cycle = 17.3 + 16.43 which 33.73 days approximately 34 days
