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2) Illustration 2: From the following information extracted from the books of a manufacturing company, compute the operating cycle in days and the amount of working capital required: Period Covered 365 days Average period of credit allowed by suppliers 16 days Average Total of Debtors Outstanding 480 Raw Material Consumption 4,400 Total Production Cost 10,000 Total Cost of Sales 10,500 Sales for the year 16,000 Value of Average Stock maintained: Raw Material 320 Work-in-progress 350 Finished Goods 260 Solution: Calculation of Operating Cycle (i) Raw material held in stock: 4,400 x 365 320 Average consumption per day Average stocks of raw materials held = 275 days Less: Average credit period granted by Suppliers 16 days 11 days (ii) Work-in-progress: 10,000 365 x 320 10,000 / 365 350 Averagecost of production per day Average W IP ma intained === 13 days (iii) Finished goods held in Stock: 10,500 260 x 365 10,500/ 365 260 Averagecos t of goods sold per days Average Finished goods ma intained === 9 days (iv) Credit period allowed to Debtors: 16,000 365 x 480 16,000 / 365 480 Averagecredit sales per day Average total of outstanding debtors === 11 days : Total operating cycle period: (i) + (ii) +(iii) + (iv) = 44 days .. Numbers of operating cycles in a year = 365/44 = 8.30 times : Amount of working capital required = 8.3 10,500 Number of operating cycles in a year Total operating cost == Rs. 1,265

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