Cash Operating Cycle For Manufacturing

Question 1

How would you calculate the cash operating cycle

Answer 1

Raw material inventory holding period
+
Average WIP holding period
+
Finished goods inventory holding period
+
Trade debtor days collection period
_
Creditor payment period

Question 2

What does raw inventory holding period tell us

Answer 2

Indicates how long raw materials are held from purchase to being used in production

Question 3

What is the formula for raw material inventory holding period

Answer 3

Average raw material inventory held
/
Material usuage
X
365

We can use purchases if material usage is not given

Question 4

How would you calculate the average raw material held

Answer 4

Add opening and closing stock /inventory and divide by two

Question 5

How do you calculate WIP holding period

Answer 5

Average WIP
/
Production cost
*
365

Question 6

How do you calculate the finished goods holding period

Answer 6

Average finished goods inventory held
/
Costs of goods sold
*
365

Question 7

What does the finished goods holding period tell us

Answer 7

The number of days the finished goods are held between the purchase of the materials the completion and sale of product

Question 9

What other figure can be used if we don’t know the material usuage

Answer 9

Pirchases

Answer 10

Purchases