Question

    A firm has the following details: • Raw

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

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