Suppose that Dunn Industries has annual sales of $2.31 million, cost of goods so

Question

Suppose that Dunn Industries has annual sales of $2.31 million, cost of goods sold of $1,660,000, average inventories of $1,126,000, and average accounts receivable of $760,000. Assume that all of Dunn’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.)

Suppose that Dunn Industries has annual sales of $2.31 million, cost of goods sold of $1,660,000, average inventories of $1,126,000, and average accounts receivable of $760,000. Assume that all of Dunn’s sales are on credit.

Explanation / Answer

Days' Sales of Inventory=365*Average Inventory/Cost of goods sold=$1,126,000*365/$1,660,000=247.58=248 days

Days Sales Outstanding=365*Average Accounts receivables/Credit Sales=$760,000*365/$2,310,000=120.09=120 days

Operating Cycle = Days' Sales of Inventory + Days Sales Outstanding=248 days+120 days=368 days

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