Question (5) Directions: Click the \"Case Link\" above and use the information p
ID: 2332251 • Letter: Q
Question
Question (5) Directions: Click the "Case Link" above and use the information provided to answer this question: Determine whether there has been a slowdown in the Marsh Company's operating cycle and if so, the nature of the slowdown. Marsh's operating cycle lengthened by about 17 days. The collection period was about 7 days longer and the holding period was about 10 days longer. Marsh's operating cycle shortened by about 2.5 days because its shorter holding period more than made up for a longer collection period. Marsh's operating cycle lengthened by about 7 days, all of which was due to a lengthening of its collection period. Marsh's operating cycle lengthened by about 9.6 days, all of which was due to a lengthening of its holding period.Explanation / Answer
Answer : For calculation of slowdown in MARSH INC. operating cycle we have to figure out company's operating cycle of both year then we have to do comparision based in calcute operating cycle to get that wether company's operating cycle is slowdown or not.
So first we hav to calculate operating cycle period of year 20Y2 & 20Y1.
Formula for OPERATING CYCLE = INVDOH ( holding period) + ARDOH ( collection period).
Formula for INVDOH = Inventory / COGS * 365
Formula for ARDOH = Account Receivable / Sales *365.
Let us do calculation first for year 20Y2 :-
Inventory = 300 , COSG = 1700 , Sales = 2200 , Account Receivable = 226
INVDOH for the year 20Y2 = 300 / 1700 *365 = 64.5 days.
ARDOH for the year 20Y2 = 226 / 2200 *365 = 37.5 days
So Now Operating Cycle for the year 20Y2 = 64.5+37.5 = 102 days
Now For the year 20Y1 :-
Inventory = 240 , COSG = 1600 , Sales = 2050 , Account Receivable = 170
INVDOH for the year 20Y2 = 240 / 1600 *365 = 54.5days.
ARDOH for the year 20Y2 = 170 / 2050 *365 = 30.5 days
So Now Operating Cycle for the year 20Y2 = 54.5+30.5 = 85 days
SO Now we have operating cycle for both the years 20Y2 & 20Y1 and if you look there is slow down due to increase in operating cycle days by 17 days ( 102 - 85 ) which cost us to lengthened operating cycle . the collection period is longer by 7 days ( 37.5 - 30.5) & Holding period is about 10 days longer ( 64.5 -54.5).