Question

In the following case, Operating Cycle = ?

Options

• 3.5 Months

• 4.5 Months

• 5 Months

• 6 Months

Answer 1

6 Months

Explanation:

The total operating cycle of a business is calculated by adding the durations of each individual stage in the cash-to-cash loop. Based on the flowchart provided in the image, the operating cycle is the sum of the raw material holding period (2 months), the processing/production time (1.5 months), the finished goods holding period (1 month), and the credit collection period allowed to trade receivables (1.5 months). Adding these stages together (2 + 1.5 + 1 + 1.5) gives a total operational duration of exactly 6 months.