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Operating Cycle Sample Assignment

Illustration:
  
  Following information is collected from the record of Sunder Manufacturing Ltd. for the year   2003.

          Cost of goods sold                                                                            Rs. 8,00,000
          Cost of production                                                                                     5,00,000
          Raw Material consumed during the year                                              6,00,000
          Average finished goods                                                                               40,000
          Average work in process                                                                              30,000
          Average Raw Material                                                                                    50,000
          Debtors collection period                                                                           45 days
          Creditors payment period                                                                           30 days

    Find out the Operating Cycle.  How many operating cycle does the firm have in a year (360 days).

Solution:

          Calculation of Net Operating Cycle:

          1.  Finished goods:                   Average Stock        x   360  =      40,000     x  360    =   18 days
                                                           Cost of goods sold                        8,00,000

          2.  Work in Process:     Average Work in Process  x   360  =      30,000    x  360    =   22 days
                                                           Cost of Production                          5,00,000

          3.  Raw Material:                   Average RM Stock        x   360  =       50,000   x  360    =   30 days
                                                              RM Consumed                               6,00,000

          4.  Debtors Collection Period:                                                                                                45 days
          Gross Operating Cycle                                                                                                          115 days
          -  Creditors Payment Period:                                                                                                   30 days
           Net Operating Cycle                                                                                                                 85 days
          No. of Operating Cycles in a year (360 ÷  85)                                                                              4.2

There are 4.2 cycles of 85 days each in one year.

Other Sample Assignments in Finance Homework Assignment :

Time Value of money	Future Value of Annuity
Current working capital cycle	Operating Cycle
Receipt And Payments Method Of Preparation Of Cash	Equiyty Per Share

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