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

What are the factors which led to the development of abc, What are the fact...

What are the factors which led to the development of ABC: 1) Traditional costing fails to capture cause and effect relationship 2) Traditional costing often fails to highlig

Accounting for pension plans, how do i calculate the actuarial gains or los...

how do i calculate the actuarial gains or losses on the present value of plan obligations?

Labor standards, Describe the impact of different types of standards on mot...

Describe the impact of different types of standards on motivations, and specifically, the likely effect on motivation of adopting the labor standard recommended for Geeta & Company

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 are the elements of cost, Elements of cost: 1. Material: the sub...

Elements of cost: 1. Material: the substance from which the product is made is known as material it may be in a raw or a manufactured state. It can be direct as well as indir

Inventory planning and control, INVENTORY PLANNING AND CONTROL The main...

INVENTORY PLANNING AND CONTROL The main goal of "inventory control" is to discover and maintain the optimum level of investment in all types of inventories, from raw materials

Stock turnover ratio, opening stock 19000 closing stock 21000 sales 200000 ...

opening stock 19000 closing stock 21000 sales 200000 gross profit 25% on sales calculate stock turnover ratio

Ilustrate the debt equity ratio, Debt equity ratio Meaning: this rati...

Debt equity ratio Meaning: this ratio establishes a relationship among long term debts and share holders funds. Objective: the objective of computing this ratio is to me

State programmed budget, Explain about Programmed budget It having expe...

Explain about Programmed budget It having expects revenues and cost of various products or projects that are termed as the main programmers of the firm. Such a budget can be pr

What is zero bases budgeting, What is Zero bases budgeting (ZBB) ...

What is Zero bases budgeting (ZBB) Meaning and definition Zero base budgeting is a management tool for providing a sys tem for a careful consideration of actual in

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