Answer :
Final answer:
The net operating cycle is a measure of the time it takes for a company to convert inventory and accounts receivable into cash. It is calculated by adding the inventory turnover period and the accounts receivable turnover period. In this case, the net operating cycle is closest to 51.7 days. Option C is correct.
Explanation:
Net operating cycle measures the time it takes for a company to convert its inventory and accounts receivable into cash through sales and then pay off its accounts payable. It is calculated by adding the inventory turnover period, which is the average number of days it takes for a company to sell its inventory, with the accounts receivable turnover period, which is the average number of days it takes for a company to collect payment from its customers.
In this case, the inventory turnover period is calculated by dividing the cost of goods sold by the average inventory [(Beginning inventory + Ending inventory)/2] and multiplying by 365 to get the number of days. (30000/((1500+2000)/2))*365 = 219.32 days. The accounts receivable turnover period is calculated by dividing the credit sales by the average accounts receivable [(Beginning accounts receivable + Ending accounts receivable)/2] and multiplying by 365 to get the number of days. (40000/((3000+0)/2))*365 = 486.67 days.
The net operating cycle is the sum of the inventory turnover period and the accounts receivable turnover period, which in this case would be 219.32 days + 486.67 days = 705.99 days. Therefore, the closest option is C. 51.7 days.
