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

Define activities based costing by horngren, Define Activities based costin...

Define Activities based costing by horngren According to horngren " ABC is a system that focuses on activities as fundamental cost object and utilizes cost of these activi

Transaction, Ask q1. On March 1, 2020, Tahir Muktar, a famous businessman i...

Ask q1. On March 1, 2020, Tahir Muktar, a famous businessman in Addis, opened a business named “Universal Garage” which is organized as a sole proprietorship. The business is estab

Illustration of optimum cash balance, M/s Sunrise Industries estimates its ...

M/s Sunrise Industries estimates its net cash requirement at Rs. 20 million for the subsequent year. Opportunity cost fund is 15 percent per annum of the Companies. The company wil

Explain the categories of the activity cost drivers, Explain the categories...

Explain the categories of The activity cost drivers The activity cost drivers can broadly be classified into following three categories: 1) Transaction drivers: for exampl

Innovations of management accounting and control, Implementing management a...

Implementing management accounting and control innovations are often problematic. Provide a brief commentary around the key factors necessary to give such innovations the best chan

Engineering method-cost estimation method, Engineering method These met...

Engineering method These methods are based on the use of engineering analysis of technological relationship between inputs and outputs e.g. method studies and time and motion s

Master Budget, What is a pro forma financial statement and how does it rela...

What is a pro forma financial statement and how does it relate to the master budget?

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