Multiple Choice
Which stage of the product life cycle is typically characterized by eroding profits for both merchandising and manufacturing companies?
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5. Inventory
Merchandising Company vs. Manufacturing Company
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Which of the following correctly places the steps of the operating cycle for a merchandising company in order?
A
Purchase inventory → Collect cash from customers → Sell inventory
B
Sell inventory → Purchase inventory → Collect cash from customers
C
Purchase inventory → Sell inventory → Collect cash from customers
D
Collect cash from customers → Purchase inventory → Sell inventory
Verified step by step guidance1
Understand the concept of the operating cycle for a merchandising company. The operating cycle refers to the process a company goes through to purchase inventory, sell it, and collect cash from customers.
Recognize that the operating cycle begins with the purchase of inventory. This is the first step because a merchandising company needs inventory to sell to customers.
Next, identify that the second step in the operating cycle is selling the inventory. Once the inventory is purchased, the company markets and sells it to customers.
The final step in the operating cycle is collecting cash from customers. After the inventory is sold, the company receives payment from customers, completing the cycle.
Compare the given options to the correct sequence of the operating cycle: Purchase inventory → Sell inventory → Collect cash from customers. This sequence aligns with the logical flow of activities in a merchandising company.
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