Chapter 4, Problem 63.1C

To determine

Concept Introduction:

Operating cycle:

Operating cycle is the chain of business activities performed in an organization. An organization can be manufacturing, servicing of merchandising type. For a merchandiser, the main business activities are the purchase, payment to the supplier, sales, and receipts from the customer. Hence the operating cycle of a merchandiser is limited as compared with the operating cycle of a manufacturer.

The Operating cycle mainly includes following activities:

-Purchases from the supplier (either cash or on account)

-Payment to suppliers

-Inventory

-Sales (either cash or on account)

-Collection from customer

The formula to calculate the operating cycle is as follows:

Net Operating Cycle = Inventory Period + Accounts Receivable Period − Accounts Payable Period

To Indicate:

The effect of the operating cycle on the difference in the prices of given stores.