The following cost of sales statements are available for Alpha traders:

Particulars 2021 2022 2023 (figures in million bdt)

1 Opening RM inventory 5.2 6.8 7.6
2 Purchases 25.6 33.5 45.6
3 Closing RM inventory 6.8 7.6 9.2
4 RM Consumed (1+2-3) 24 32.7 44
5 Wages and Salaries 8.1 11.2 15.3
6 Other Manufacturing Exp. 3.2 4.4 5.8
7 Depreciation 1.8 2 2.6
8 Total Cost (4+5+6+7) 37.1 50.3 67.7
9 Opening work in process inventory 1.8 2 3.1
10 Closing work in process inventory 2 3.1 4.6
11 Cost of production 36.9 49.2 66.2
12 Opening finished goods inventory 3.2 2.8 3.6
13 Closing finished goods inventory 2.8 3.6 2.9
14 Cost of goods sold 37.3 48.4 66.9
15 Selling, administrative and other expenses 1.3 1.9 2.1
16 Cost of sales (14+15) 38.6 50.3 69

The following additional information is also given: 2021 2022 2023 (figures in million bdt)
Sales 45.9 60.1 82.7
EBIT 7.3 9.8 13.7
Debtor : Opening 8.3 10.8 14.9
Debtor : Closing 10.8 14.9 20.5
Creditor : Opening 3.7 4.6 8
Creditor : Closing 4.6 8 12

Calculate the Gross Operating Cycle and Net operating Cycle/ Cash conversion cycle.

Solution 2021 2022 2023

GOC=ICP+RCP
ICP = RMCP+WIPCP+FGCP
RCP=(Debtors*360)/ Credit Sales

RMCP=(RMI*360)/RMC 90.00 79.27 68.73 days

WIPCP = (WIPI*360)/COP 18.54 18.66 20.94 days
FGCP = (FGI*360)/COGS 28.95 23.80 17.49 days

ICP 137.49 121.73 107.15 days

RCP 74.90 76.97 77.05 days

GOC 212.39 198.70 184.20 days

NOC= GOC-PDP
PDP= (Creditors*360)/ Credit Purchase
PDP 58.36 67.70 78.95 days

NOC 154.03 131.00 105.25 days

The following cost of sales statements are available for Alpha traders:

Particulars 2023 (figures in million bdt)

1 Opening RM inventory 7.6
2 Purchases 45.6
3 Closing RM inventory 9.2
4 RM Consumed (1+2-3) 44
5 Wages and Salaries 15.3
6 Other Manufacturing Exp. 5.8
7 Depreciation 2.6
8 Total Cost (4+5+6+7) 67.7
9 Opening work in process inventory 3.1
10 Closing work in process inventory 4.6
11 Cost of production 66.2
12 Opening finished goods inventory 3.6
13 Closing finished goods inventory 2.9
14 Cost of goods sold 66.9
15 Selling, administrative and other expenses 2.1
16 Cost of sales (14+15) 69

the following additional information is also given:

Sales 82.7
EBIT 13.7
Debtor : Opening 14.9
Debtor : Closing 20.5
Creditor : Opening 8
Creditor : Closing 12

(i)Calculate GOC and NOC.

(ii)What happens to the OC if the Receivables are collected 15 days earlier and payables are repaid 10 days later?
(iii) If the receivables are collected 10 days later and the payables are repaid 5 days earlier from the initial calculation, how does the net operating cycle change?
(iv)How does the change in ii & iii affect the working capital financing needs of this firm?
 i ii iii
Solution 2023
GOC=ICP+RCP
ICP = RMCP+WIPCP+FGCP
RCP=(Debtors*360)/ Credit Sales

RMCP=(RMI*360)/RMC 68.73 days 68.73 days 68.73 days

WIPCP = (WIPI*360)/COP 20.94 days 20.94 days 20.94 days
FGCP = (FGI*360)/COGS 17.49 days 17.49 days 17.49 days

ICP 107.15 days 107.15 days 107.15 days

RCP 77.05 days 62.05 days 87.05 days

GOC 184.20 days 169.20 days 194.20 days

NOC= GOC-PDP
PDP= (Creditors*360)/ Credit Purchase
PDP 78.95 days 88.95 days 73.95 days

NOC 105.25 days 80.25 days 120.25 days

ii.
Shorter CCC implies the net time interval between cash collection from sale of a product to cash payment of resources acquired by firm decreases
More reliance on spontaneous sources

iii.
Longer NOC implies a longer cash conversion cycle.
This implies that the net time interval between cash collection from sale of a product to cash payment of resources acquired by the firm increases.
More reliance on negotiated sources or non-spontaneous sources of WC
ating cycle change?
A pro-forma cost sheet of a company shows the following data:
Costs (per unit):
Raw Materials 52.00 Additional Information:
Direct Labour 19.50 Average Raw Material in Stock: 1 Month; Average Materials in Proces
Overheads 39.00 Credit allowed by suppliers: 1 Month; Credit allowed to debtors: 2 m
Total Costs (per unit) 110.50 Time Lag in payment of Wages : One and a half weeks
Profit 19.50 Overheads : 1 Month
Selling Price 130.00 One-fourth of the sales are on cash basis. Cash Balance is expected to

You are required to prepare a statement showing the working capital needed to finance a level of activity of 70000 units of output.
You may assume that production is carried ut evenly, throughout the year and wages and overheads accrue similarly.

output 70000 dayn in a year 360

SOLUTION:

Calculation of working capital needs:

Particulars BDT
Investment in Inventory
1. Raw Material Inventory : 303,333.33
One month i.e. 30 days
RMCP=RMI*360/RMC
RMI=RMCP*RMC/360
2. Work in Process Inventory : 322,291.67
Half a month i.e. 15 days
WIPCP=WIPI*360/COP
WIPI=WIPCP*COP/360
3. Finished Goods Inventory : 644,583.33
One month i.e. 30 days
FGCP=FGI*360/COGS
FGI=FGCP*COGS/360
A. Investment in Inventory 1,270,208.33
B. Investment in Debtors 966,875.00
2 months i.e. 60 days
RCP= Debtors*360/Credit Sales
Debtors= RCP*Credit Sales /360

C. Cash Balance 120,000.00

D. Investment in Current Assets 2,357,083.33

A+B+C

Current Liabilities: Deferred Payments

1. Creditors: 303,333.33
1 month i.e 30 days
PDP=Creditors*360/Credit Purchase
Creditors=PDP*Credit Purchase/360
2. Deferred Wages 39,812.50
1.5 weeks i.e. 10.5 days
3. Deferred Overheads 227,500.00
1 month i.e. 30 days

E. Total deferred payment (spontaneous 570,645.83

source of Working Capital)

NET WORKING CAPITAL (D-E) 1,786,437.50

 h; Average Materials in Process: Half a month.
Credit allowed to debtors: 2 months.
nd a half weeks

is. Cash Balance is expected to be BDT 120,000.