Question

Consider the following financial statement information for the Hop Corporation:

Item Beginning Ending
Inventory $16,284 $19,108
Accounts receivable 11,219 13,973
Accounts payable 13,960 16,676
Net sales $219,320
Cost of goods sold 168,420
Calculate the operating and cash cycles.

Answer 1

The operating cycle of the Hop Corporation is 38.46 days, and the cash cycle is 59.41 days.

Step-by-step explanation:

The operating cycle is the number of days it takes for a company to turn its inventory into cash through sales. To calculate the operating cycle, we need to determine the number of days it takes for inventory to be sold and for accounts receivable to be collected. First, we calculate the average inventory by adding the beginning and ending inventory and dividing by 2, which is (16,284 + 19,108) / 2 = 17,696. Next, we divide the average inventory by the cost of goods sold and multiply by 365 (number of days in a year) to get the number of days it takes for inventory to be sold: (17,696 / 168,420) × 365 = 38.46 days. Then, we calculate the average accounts receivable by adding the beginning and ending accounts receivable and dividing by 2, which is (11,219 + 13,973) / 2 = 12,596. Finally, we divide the average accounts receivable by the net sales and multiply by 365 to get the number of days it takes for accounts receivable to be collected: (12,596 / 219,320) × 365 = 20.95 days.

The cash cycle is the number of days it takes for a company to turn its cash investments into cash received from sales. To calculate the cash cycle, we add the number of days it takes for inventory to be sold to the number of days it takes for accounts receivable to be collected: 38.46 days + 20.95 days = 59.41 days.

Answer 2

Operating cycle = 59.29 days

Cash cycle = 26.1115 days

Step-by-step explanation:

From the information given:

`\text{Beginning Inventory \$16,284} \\ \\ \text{Beginning Accounts receivable 11,219} \\ \\ \text{Beginning Accounts payable 13,960} \\ \\ \text{Ending Inventory $19,108} \\ \\ \text{Ending Accounts receivable 13,973} \\ \\ \text{Ending Accounts payable 16,676} \\ \\ \text{Net sales \$219,320} \\ \\ \text{Cost of goods sold 168,420} \\ \\`

`\text{Ending Inventory \$19,108} \\ \\ \text{Ending Accounts receivable 13,973} \\ \\ \text{Ending Accounts payable 16,676} \\ \\ \text{Net sales \$219,320} \\ \\ \text{Cost of goods sold 168,420} \\ \\`

To start with:

`\text{Average inventory = } (Beginning \ value +Ending \ value)/(2) \\ \\ =\frac{ 16,284 + 19,108} {2} \\ \\ = (35,392)/( 2) \\ \\ = \$17,696`

`\text{Average receivable }=( Beginning value + Ending value )/( 2) \\ \\ =( 11,219 + 13,973 )/(2) \\ \\ =( 25,192 )/( 2) \\ \\= \$12,596 \\ \\`

`\text{Average payable }= (Beginning \ value + Ending\ value)/( 2) \\ \\ = (13,960 + 16,676 )/(2) \\ \\= (30,636)/(2) \\ \\ = \$15,313`

`\text{Days of inventory outstanding} = (Average \ inventory )/( Cost \ of \ goods \ sold ) * 365 \\ \\ (= 17,686)/( 168,420) * 365 \\ \\ = 0.105* 365 \\ \\= 38.329 \ days`

`\text{Days \ of \ receivable \ outstanding }= (Average \ receivable )/( sales )* 365 \\ \\ (= 12,596 )/( 219,320) * 365 \\ \\ = 0.0574 * 365 \\ \\= 20.951 \ days`

`\text{Days of payable outstanding} = (Average payable)/(cost of goods sold) * 365 \\ \\ = (15,313 )/( 168,420) * 365 \\ \\ = 0.0909 * 365 \\ \\= 33.1785 days`

`\text{Operating Cycle = Days of inventory outstanding + Days of receivable outstanding} \\ \\ = 38.339 + 20.951 \\ \\ = 59.29 days`

`\text{Cash Conversion Cycle = Operating cycle - Days of payable outstanding} \\ \\ = 59.29 - 33.1785 \\ \\ = 26.1115 days \\ \\`