Question

1. ABC Corporation currently has an Inventory Turnover of 13.99, an Accounts Receivable Turnover of 24.52, and an Accounts Payable Turnover of 19. How many days are in the operating cycle?

2.

Indicate the effect of the following on the cash cycle: Accounts Receivable Period (AR Period) goes up

Note: AR Period is also called as the Average Collection Period

Group of answer choices

* No change

* Increase

* Decrease

Answer 1

1) Calculation of operating cycle:

Particulars	Amount
Oprating cycle = Inventory conversion period+average collection period
Inventory converson period = 365/13.99	26.09
Average collection period= 365/24.52	14.89
Operating cycle = 26.09+14.89	40.98
Operating cycle =40.98 days

2)

Cash conversion cycle = Inventory conversion period+average collection period-payable deferral period

So increase in average collection period will increase Cash cycle. So correct answer is increase.