The following information pertain to MSD Limited for the year ending 31 st March, 2024: Particulars Number of days Raw material storage period 61…

CA Intermediate · Financial Management and Strategic Management · PYQS · January 2025
The following information pertain to MSD Limited for the year ending 31 st March, 2024: Particulars Number of days Raw material storage period 61 days Work-in-progress conversion period 20 days Finished goods storge period 30 days Debt collection period 45 days Creditors payment period 60 days The annual operating cost (including depreciation of 4,80,000) was - 60,00,000. Assume 360 days in a year. You are required to calculate: (i) Operating cycle period (ii) Number of operating cycles in a year (iii) Amount of working capital required for the company

Suggested Answer and Working Notes:

(i) Net Operating Cycle Period = R + W + F + D - C Where, R = Raw material storage period. W = Work-in-progress holding period. F = Finished goods storage period. D = Debtors collection period. C = Credit period availed. = 61 + 20 + 30 + 45 - 60 = 96 days (ii) Number of Operating Cycles in the Year = 360 / Operating Cycle Period = 360 / 96 = 3.75 times (iii) Amount of Working Capital Required = Annual Operating Cost / Number of Operating Cycles = 60,00,000 / 3.75 = 16,00,000 Alternative Solution on cash cost basis to Part (ii) (iii) Amount of Working Capital Required = (Annual Operating Cost - Depreciation) / Number of Operating Cycles = (₹ 60,00,000 -4,80,000) / 3.75 = 14,72,000

Topics: Part-A: Financial Management

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic