Answer (C) is correct . The operating cycle is the length of time it takes a company to complete normal operating activities. Thus, the operating cycle is a cash-to-cash cycle equivalent to the average time that inventory is held plus the average time that receivables are held. Volpone holds its inventory 72.50 days [365 days ¡Â ($4,380,000 COGS ¡Â $870,000 average inventory)] and its receivables 19.71 days [365 days ¡Â ($6,205,000 sales ¡Â $335,000 average receivables)]. Its operating cycle is 92.21 days (72.50 + 19.71).
Answer (A) is incorrect because The inventory alone is held for 72.50?days.
Answer (B) is incorrect because The number of 93.09 days is based on the ending receivables balance.
Answer (D) is incorrect because The number of 99.71 days is based on the ending inventory.
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Volpone Company’s operating cycle for Year 2 is
