Compute the operating cycle, Managerial Accounting

Assignment Help:

Under this method, approximation is made of payments and cash receipts in the ensuring period. The dissimilarity of these payments and receipts indicates deficiency or surplus of cash. The management formulates plans to procure the amount of deficit. This method, in a way, is a form of cash budget.

Illustration: Compute the operating cycle and the working capital requirements from the subsequent figures:

 

Balance as at

Balance as at

 

1st January

31st December

 

Rs.

Rs.

Raw Material

80,000

1,20,000

Work-in-Progress

20,000

60,000

Finished goods

60,000

20,000

Sundry Debtors

40,000

40,000

Wages and Manufacturing Expenses

-

2,00,000

Distribution and Other Expenses

-

40,000

Purchases of Materials

-

4,00,000

Total Sales

-

10,00,000

 

(i)  The Company acquires a credit for 60 days from its suppliers.

(ii)  All goods were sold for credit.

Solution:

Computation of Operating Cycle

(i)                 Material Storage Period:

=   Average Stock of Raw Materials/Daily Average Consumption

= ((Rs.80,000 + 1,20,000) / 2)/(Rs.3,60,000 / 365)

= Rs.1,00,000/ Rs.986.3

= 101.38 days

Material Consumed = Opening Stock + Purchases - Closing Stock

= Rs. 80,000 + 4,00,000-1,20,000

= Rs. 3,60,000

(ii) Conversion or Processing Period

= Average Stock of Work - in - progress/Daily Average Factory Cost

=  ((Rs.20,000 + 60,000) / 2)/( Rs.5,20,000 / 365)

=  (Rs.40,000) / (Rs.1,424.65)

= 28.07days

Factory Cost:                                                    Rs.

Opening Work-Progress                                20,000

Material Consumed (as above)                    3,60,000

Wages and Mfg. Expenses                            2,00,000

          5,80,000

Less: Closing Work-in-Progress                   60,000

5,20,000

(iii) Finished Goods Storage Period

= Average Stock of Finished Good/Daily Average Cost of Goods Sold

=   ((Rs.60,000 +20,000) / 2)/(Rs.5,60,000 / 365)

=  (Rs.40,000)/ Rs.1,534.25

= 26.07days

Cost of Goods sold                                                          Rs.

Opening Stock of Finished Goods

60,000

Factory Cost (as above)

5,20,200

 

5,80,000

Less: Closing Stock of Finished Goods

20,000

 

5,60,000

(iii)    Debtors Collection period

=   Average Debtors/Daily Average Sales

=   ((Rs.40,000 + 40,000) / 2)/(Rs.10,00,000 / 365)

=   (Rs.40,000) / Rs. 2,739.7

 = 14.6 days


Related Discussions:- Compute the operating cycle

Explain quality control and total quality control, Explain Quality control ...

Explain Quality control and Total quality control Quality control (QC) circles can be viewed as a group oriented suggestion system for making improvements. QC circle is a sm

Positioning, Positioning An essential part of the planning process is p...

Positioning An essential part of the planning process is positioning the organization to attain its goals. Positioning is a wide concept and depends on gathering and evaluating

Strategic plan, How to write introduction on strategy plan

How to write introduction on strategy plan

Financial manager''s role in inventory management, Financial manager's role...

Financial manager's role in inventory management The techniques of inventory management are very useful in determining the optimum level of inventory and finding answers to the

Incremental analysis, What nonfinancial factors should management consider ...

What nonfinancial factors should management consider in making its decision on whether to accept or reject a special order?

Chapter 2 problem 2-23 T-Accounts;applying overhead, solution to problem 2-...

solution to problem 2-23,T-Accounts;applied overhead of Kleinman Company is a manufacturing firm and employess a job-order costing system.

Chapter 3, Cretin Enterprises uses a predetermined overhead rate of $21.40 ...

Cretin Enterprises uses a predetermined overhead rate of $21.40 per direct labor-hour. This predetermined rate was based on a cost formula that estimated $171,200 of total manufact

Evaluate marginal cost, 1. If the marginal cost of producing a good is incr...

1. If the marginal cost of producing a good is increasing as a firm produces more of the good, then which of the following must be true? a. AFC is rising               b. AVC i

How much must you deposit each year to reach your goal, Right now you are 2...

Right now you are 20 years old and you have decided that you want to have $2,000,000 in the bank when you turn 65 years old. How much must you deposit each year to reach your goal

What is activity based management, ABM(Activity based management): ABM ...

ABM(Activity based management): ABM system is primary source of information for AM as a part of ABM identify value added and non-value added activity and management are also to

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd