Question

New Oaks Winery requires two months to make wine, two years to age it, one month to bottle it, two months to sell it, and one month to collect the receivable.

Its operating cycle is:

(A) Twelve months.

(B) Six months.

(C) Thirty months.

(D) Three months.

Answer 1

Answer:

C) Thirty months

Explanation:

The operating cycle is the total amount of time that the company requires to finish the product, sell it, and receive the cash from the sale.

In this case, New Oaks Winery requires a total of 30 months, because it takes 27 months to finish the product (making, aging and bottling the wine), 1 month to sell it, and two months to collect the cash.