Solve the below given cases: a. Calculate the Operating Cycle of Western Food Limited for the below given information

Solve the below given cases:
a. Calculate the Operating Cycle of Western Food Limited for the below given information

Raw Material holding period (days) 30
WIP days 45
Finished good days 20
Debtor days 60
Creditor days 30

b. You won a lottery of Rs. 150000 from Dus ka dum and you have deposited the amount in bank and which is going to redeemed in 10 years, interest rate: 12%, find out what amount you will be receiving after 10 years.

Expert Solution

a.

The operating cycle of a firm is the time duration between paying the creditors for inventory to collecting cash from credit sales. It is generally denoted by the number of days. The formula for the same is as under:

Operating Cycle = (Raw material holding period in days + WIP days + Finished good days + Debtor days) - Creditor days

= (30 + 45 + 20 + 60) - 30

= 125 Days

Hence the Operating cycle of Western Food Limited is 125 days. It is also termed as Net Operating Cycle.

(If we do not deduct the Creditor days in the formula, it becomes Gross Operating Cycle.)

b.

This question needs to be solved using the Future value of money concept.

Hence, you will be receiving Rs. 46,5900 after 10 years from the bank.

a. Hence the Operating cycle of Western Food Limited is 125 days. It is also termed as Net Operating Cycle.

Junaid answered 2 years ago

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