Question (2) Directions: Click the \"Case Link\" above and use the information p
ID: 2332388 • Letter: Q
Question
Question (2) Directions: Click the "Case Link" above and use the information provided to answer this question: Determine whether there has been a slowdown in Brook Plumbing Supply's operating cycle between 20Y2 and 20Y3 and if so, the nature of the slowdown. Brook Plumbing's operating cycle slowed by 4.2 days, due entirely to its longer holding period. Brook Plumbing's operating cycle slowed by 8.5 days, due to its collection period lengthening by 4.3 days and its holding period lengthening by 4.2 days. Brook Plumbing's operating cycle actually shortened by 4.3 days, due entirely to its shorter collection period. There was virtually no change in Brook Plumbing's operating cycle, because its shorter collection period made up for its longer holding periodExplanation / Answer
Operating Cycle for 20Y2 Annual Cost of Goods sold $4,258 Days in the year 365 Cost of goods sold per day $11.67 Inventory at the end of the year $902 Days inventory outstanding (902/$11.67) 77.3 Annual Sales Revenue $5,801 Days in the year 365 Revenue per day $15.89 Accounts Receivable at the end of the year $770 Days sales outstanding (770/15.89) 48.4 Operating Cycle = Days inventory outstanding+Days sales outstanding =77.1+48.4 =125.5 days Operating Cycle for 20Y3 Annual Cost of Goods sold $4,814 Days in the year 365 Cost of goods sold per day $13.19 Inventory at the end of the year $1,075 Days inventory outstanding (1075/13.19) 81.5 Annual Sales Revenue $6,504 Days in the year 365 Revenue per day $17.82 Accounts Receivable at the end of the year $785 Days sales outstanding (785/17.82) 44.1 Operating Cycle = Days inventory outstanding+Days sales outstanding =81.5+44.1 =125.6 days There was virtually no change in Brook Plumbing's operating cycle, because its shorter collection period made up for its longer holding period