Melons 'R' Us, a national chain of fruit stands, has an inventory period of 65 days, an accounts payable period of 30 days, and an accounts receivable period of 24 days. The CFO wants to implement a discount plan in order to reduce the receivables period to 18 days. What will happen to the firm's operating cycle?

A) It will fall from 89 days to 83 days.
B) It will fall from 59 days to 53 days.
C) It will be unaffected by the change in policy.
D) It will rise from 85 days to 91 days.
E) It will rise from 81 days to 87 days.

Question

Vanesia French · Accepted Answer

Final Answer : A, Explanation :  The operating cycle is calculated as the inventory period plus the accounts receivable period. Initially, it's 65 days (inventory period) + 24 days (accounts receivable period) = 89 days. With the reduction in the accounts receivable period to 18 days, the new operating cycle becomes 65 days + 18 days = 83 days. Therefore, the operating cycle will fall from 89 days to 83 days.

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