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Illustration 1: The following information is available for Swagat Ltd.: (. '000) Average stock of raw materials and stores 200 Average WIP inventory 300 Average finished goods inventory 180 Average accounts receivable 300 Average accounts payable 180 Average raw materials and stores purchase on credit and consumed per day 10 Average WIP value of raw materials committed per day 12.5 Average cost of goods sold per day 18 Average sales per day 20 You are require to calculate: (i) Duration of raw material stage (ii) Duration of WIP stage (iii) Duration of Finished goods stage (iv) Duration of accounts receivable stage (v) Duration of accounts payable stage, and (vi) Duration of operating cycle. Solution: (i) Duration of Raw Material Stage = 10 200 Average raw materials and stores purchased per day Average Stock of Raw materials and Stores == 20 days (ii) Duration of ) Work-in-progress Stage = 12.5 300 Average work in progress value of raw materials committed per day Average work in progress inventory = ---= 24 days (iii) Duration of Finished Goods Stage = 18 180 Average cost of goods sold per day Average Finished goods inventory == 10 days (iv) Duration of Accounts Receivable Stage = 20 300 AverageCredit sales per day Average Accounts Receivable = = 15 days (v) Duration of Accounts Payable Stage = 10 180 AverageCredit purchase per day Average Accounts Payable = = 18 days (vi) Duration of Operating Cycle = (i) + (ii) + (iii) + (iv)-(v) = 20 days + 24 days + 10 days + 15 days - 18 days = 51 days

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