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

Capital budgeting – planning investments, Project C would involve a current...

Project C would involve a current outlay of $50,000 on equipment and $15,000 on working capital. The investment in working capital would be increased to $21,000 at the end of the f

Value added statements, VALUE ADDED STATEMENTS Are intended to show how...

VALUE ADDED STATEMENTS Are intended to show how much wealth or value has been created by the company’s operations and how the wealth has been shared out to interested groups e.

Differential analysis, Barker Company has a single product called a Zet. Th...

Barker Company has a single product called a Zet. The company normally produces and sells 80,000 Zets each year at a selling price of $40 per unit. The company’s unit costs at this

Introduction to performance evaluation, Introduction to Performance Evaluat...

Introduction to Performance Evaluation Performance evaluation deals with the area of MA that is concerned with: 1) Holding individual managers responsible for certain aspect

Advantages and limitations of game theory, Advantages and limitations of ga...

Advantages and limitations of game theory Advantage: Game theory helps us to learn how to approach and understand a conflict situation and to improve the decision maki

Adjusting entries, what do you debit and what do you credit in adjusting en...

what do you debit and what do you credit in adjusting entry for prepaid rent?

Select appropriate alternative courses of action, Select Appropriate Altern...

Select Appropriate Alternative Courses of Action In practice, decision-making includes choosing among competing alternative courses of action and choosing the alternative which

Advantages of simulation, Advantages of Simulation 1) It can be used in...

Advantages of Simulation 1) It can be used in areas where analytical techniques are not available or would be too complex. 2) Constructing the model inevitably must involve

Full service non recourse, Full Service Non Recourse: in this method the b...

Full Service Non Recourse: in this method the book debts are purchased through the factor assuming 100 percent credit risk. In case of default through the debtor the whole risk is

Cost behavior, Echeverria SA is an Argentinian manufacturing company whose ...

Echeverria SA is an Argentinian manufacturing company whose total factory overhead costs fluctuate somewhat from year to year according to the number of machine-hours worked in its

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