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    Question

    Calculate the operation cycle from the given data

    A.    Duration of Raw material stage B.    Duration of work in progress stage C.   Duration of Finished goods stage D.   Duration of account receivables E.    Duration of account payables
    A A+B+C+D+E Correct Answer Incorrect Answer
    B A+B+C+D-E Correct Answer Incorrect Answer
    C C+D+E Correct Answer Incorrect Answer
    D C+D-E Correct Answer Incorrect Answer
    E A+B+C-D-E Correct Answer Incorrect Answer

    Solution

    Operating cycle refers to the days required for a business to receive inventory, sell the inventory, and collect cash from the sale of the inventory. It is the sum of the inventory and receivables reduced by the payables days. Inventory includes all types of inventory. As such operating cycle can be calculated as: Raw material days+ work in progress days+ finished goods days+ account receivables days– Account payables

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