Answer:
a. Operating cycle is 50 days
b. Turn 7.30 times in a year
Explanation:
The computation of the short term operating cycle is shown below:
= Average production process time + Average finished goods time + Average account receivable time - purchase from suppliers time
= 40 days + 15 days + 35 days - 40 days
= 50 days
And, the cycle would turn over in a year by 7.30 times which is computed by dividing the total number of days in a year by operating cycle
In mathematically,
= 365 days ÷ 50 days
= 7.30 times
The average length of the firm's short-term operating cycle is 50 days.
Operating cycle
Operating cycle=Days inventory outstanding+Days sales outstanding
Operating cycle=15 days+35 days
Operating cycle=50 days
Cycle over a year=365 days/50 days
Cycle over a year=7.3 times
Inconclusion the average length of the firm's short-term operating cycle is 50 days.
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