BUISENESS MANAGEMENT
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Raw material, work in progress, finished goods, sales
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Cash, raw material, work in process, finished goods, sales, cash
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Raw material, work in process, finished goods
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Cash, raw material, work in process, finished goods, sales
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Detailed explanation-1: -The operating cycle of a manufacturing company involves three phases: Acquisition of resources such as raw material, labour, power and fuel etc. Manufacture of the product which includes conversion of raw material into work-in-progress into finished goods. Sale of the product either for cash or on credit.
Detailed explanation-2: -An Operating Cycle refers to the days required for a business to receive inventory, sell the inventory, and collect cash from the sale of the inventory. This cycle plays a major role in determining the efficiency of a business. Therefore, this statement is correct.
Detailed explanation-3: -The operating cycle is calculated as the Inventory period + Accounts Receivable Period.
Detailed explanation-4: -Working Capital Cycle (WCC) is the time it takes to convert net current assets and current liabilities (e.g. purchased stock) into cash. A long cycle means tying up capital for a longer time without earning a return. Short cycles allow your business to free up cash faster and to be more agile.