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158 Financial Management
Period Covered
365 days
Average period of credit allowed by suppliers 16 days
Average Total of Debtors Outstanding 480 00
Raw Material Consumption 4,400 00
Total Production Cost 10,000 00
Total Cost of Sales 10,500 00
Sales for the year 16,000 00
Value of Average Stock maintained:
Raw Material 320 00
Work-in-progress 350 00
Finished Goods 260 00
(ICWA Final, JUNE, 1986 adapted)
Solution
Computation of Operating Cycle
(i) Raw material held in stock:
Average stocks of raw materials held
Average consumption per day
=
320
4,400 × 365
=
320 × 365
4,400
= 275 days
Less: Average credit period granted by Suppliers
(ii) Work-in-progress:
16 days
11 days
Average WIP maintained
Average cost of production per day = 350
10,000/365
(iii)
Finished good held in stock:
=
365 × 320
10,000
= 13 days
Average finished goods maintained
Average cost of goods sold per days = 260
10,500/365
=
260 × 365
= 9 days
10,500