Question

Bax Industries has an inventory turnover of 60 days and an average receivables collection period of 45 days. What is Bax's operating cycle?

Option 1: 60 days
Option 2: 105 days
Option 3: 45 days
Option 4: 15 days

Answer 1

Bax Industries' operating cycle is the sum of its inventory turnover period of 60 days and its receivables collection period of 45 days, totaling to 105 days.

Step-by-step explanation:

The operating cycle of a company is the sum of its inventory turnover period and its receivables collection period. Bax Industries has an inventory turnover of 60 days and an average receivables collection period of 45 days. To calculate the operating cycle, we add these two periods together.

Operating Cycle = Inventory Turnover Period + Receivables Collection Period = 60 days + 45 days = 105 days.

Therefore, Bax Industries' operating cycle is 105 days, which is the total time from the acquisition of inventory to the collection of cash from receivables.