Over the past year, Ardmore Company reported sales of $5.1 million (70% credit sales) and cost of
Question:
Over the past year, Ardmore Company reported sales of $5.1 million (70% credit sales) and cost of goods sold of $3.6 million. On average, inventory was sold in 65 days and receivables were collected in 43 days. Beginning inventory was $625,000 and ending inventory was $675,000. The average number of days’ purchases in accounts payable using a 365-day year is 50 days.
Information about the industry indicates that the average industry inventory turnover ratio is 7, the average industry accounts receivable turnover ratio is 9, and the average industry days’ purchases in
payables is 60 days. Based on this given information, what conclusion could you draw about the firm’s operating cycle? (Round to nearest whole number)
a. The firm’s current operating cycle is 14% greater than the industry's average operating cycle.
b.The firm’s current operating cycle is 16% greater than the industry's average operating cycle.
c.The firm’s current operating cycle would be 12 days less if its turnover ratios were the same as
industry averages.
d) The firm’s current operating cycle would be 25 days less if its turnover ratios were the same as
industry averages.
Expert Answer:
The correct Answers is B The firms current operating cycle is 16 greater than the industrys average ... View the full answer
