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

Linear programming, what areas can linear programming be applied in manager...

what areas can linear programming be applied in managerial accounting?

Management''s statement of responsibility, 1. A firm's independent auditors...

1. A firm's independent auditors have the responsibility to: a. assess the firm's accounting policies. b. ascertain the firm's profit potential. c. uncover all fraudulent

Quadratic loss function, Consider the following quality data for three diff...

Consider the following quality data for three different manufacturers of automobile weather-strips: Weather-strip Bulb Dimension Specification y=20 +or- 4mm

Describe financial budgets, Describe Financial budgets Financial budget...

Describe Financial budgets Financial budgets: financial budgets are concerned with cash receipts and disbursements working capital expenditure financial position and business o

Determine the scope and areas of cost reduction, Determine the Scope and ar...

Determine the Scope and areas of cost reduction Scope and areas of cost reduction the scope of cost reduction is so wide that it is not practicable to develop fully the areas i

International management challenges of globalization., what is the topic ab...

what is the topic about? what are the practical implications? what are the practical criticisms?

Cvp analysis and computer applications, CVP ANALYSIS AND COMPUTER APPLICATI...

CVP ANALYSIS AND COMPUTER APPLICATIONS The output from a CVP model is only as good as the input. The analysis will include assumptions about sales mix, production efficiency, p

Stock-out costs, Stock-out costs These are the opportunity costs of run...

Stock-out costs These are the opportunity costs of running out of stock. They comprise: 1) The costs of lost customer sales, and therefore lost contribution to fixed costs.

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