Asked by Madison Martinez on Jun 05, 2024
Verified
ABC Manufacturing historically produced products that were held in inventory until they could be sold to a customer. The firm is now changing its policy and only producing a product when it receives an actual order from a customer. All else equal, this change will:
A) Increase the operating cycle.
B) Lengthen the accounts receivable period.
C) Shorten the accounts payable period.
D) Decrease the cash cycle.
E) Decrease the inventory turnover rate.
Operating Cycle
The average period of time between the acquisition of materials or services and the final cash realization from those activities in a company.
Accounts Receivable Period
Accounts Receivable Period is the average number of days it takes for a company to collect payment from its customers after a sale has been made.
Cash Cycle
The period of time it takes for a business to convert its investments in inventory and other resources into cash flows from sales.
- Comprehend the elements affecting the cash and operating cycles.
Verified Answer
SF
sianni faustJun 08, 2024
Final Answer :
D
Explanation :
Switching to a production model where goods are only manufactured upon receiving an actual order reduces the time products spend in inventory before being sold, thereby decreasing the cash cycle. This approach minimizes the gap between paying for production inputs and receiving payment from customers.
Learning Objectives
- Comprehend the elements affecting the cash and operating cycles.