CA Inter P6 · Chapter 9 · Question 1 of 9
A manufacturer holds raw materials for 45 days, work-in-progress for 15 days and finished goods for 30 days. It allows customers 50 days' credit and receives 40 days' credit from suppliers. Its net operating cycle is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 100 days
Explanation
Gross operating cycle = raw material + WIP + finished goods + receivables periods = 45 + 15 + 30 + 50 = 140 days. Net operating cycle = gross operating cycle - payables deferral period = 140 - 40 = 100 days. The figure 140 days is the gross cycle.
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