Pretty LADY cosmetics products has an average production process time of 40 days. Finished goods are kept on hand for an average of 15 days before they are sold. Accounts receivable are outstanding an average of 35 days, and the firm receives 40 days of credit on its purchases from suppliers.
a) Estimate the average length of the firms short -term operating cycle. How often would the cycle turn over in a year?
b.) Assume net sales of $1,200,000 cost of goods sold of $900,000. Determine the average investment in accounts receivable, inventories and accounts payable. What would be the net financing need considering only these accounts.