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    Question

    A firm has the following details: β€’ Raw

    material holding: 25 days β€’ WIP: 15 days β€’ Finished goods: 20 days β€’ Receivables: 30 days β€’ Payables: 40 days β€’ Creditors for wages & overheads: 10 days Calculate the net operating cycle (in days), and interpret the working capital implication.
    A 50 days β†’ Moderate working capital need Correct Answer Incorrect Answer
    B 40 days β†’ Low working capital need Correct Answer Incorrect Answer
    C 60 days β†’ High working capital need Correct Answer Incorrect Answer
    D 70 days β†’ Excessive working capital blockage Correct Answer Incorrect Answer

    Solution

    Gross Operating Cycle = RM + WIP + FG + Receivables = 25 + 15 + 20 + 30 = 90 days Less: Payables = 40 + 10 = 50 days Net Operating Cycle = 90 – 50 = 40 daysΒ 

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