Home Systems has sales of $312,800, cost of goods sold of $218,400, inventory of $46,300, an accounts receivable of $62,700. How many days, on average, does it take the firm to both sell its inventory and collect payment on the sale

The operating cycle of the business is 150.54 days or 150 days

Explanation:

Operating cycle is the cycle which is defined as the performance measure or determination of the business that states the business ability to convert the inventory into finished goods, sell the finished goods in the market and then collect the payments from the customers.

Computing the operating cycle of the business as:

Operating Cycle = Days' Sales in inventory + Days' Sales in Receivables

where

Days' Sales in inventory = Number of days in a year / (Cost of goods Sold / Inventory)

= 365 / ($218,400 / $46,300)

= 365 / 4.7170

= 77.3787

Days' Sales in Receivables = 365 / (Sales / Receivables)

= 365 / ($312,800 / $62,700)

= 365 / 4.9888

= 73.1634

Putting the values above:

Operating Cycle = 77.3787 + 73.1634

Operating cycle = 150.54

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