Required: Calculate G & G limited working capital cycle (cash operating cycle) in days.
G & G limited is a recently established company specialising in the manufacture of a range of drugs for the pharmaceutical industry. Two brothers, Bwalya and Chanda, formed the company and have just finished the first year of business. Sales are made to customers on 60-day payment terms and all suppliers offer 30 days’ credit. All of the raw materials purchased by G & G limited only last for a limited time. Therefore, it is the company’s policy that such chemicals are used within 75 days of purchase. Whilst the brothers are experienced in the field of pharmaceuticals, they are finding it difficult to understand some of the financial matters associated with running a company. You are employed in the company and have collected the following information for the last year. $
Sales 1,500,000
Raw material purchases 378,000
Direct labour costs 240,000
Variable production
Apportioned fixed production overheads 185,000
Average receivables 356,000
Average inventories:
Finished goods 210,000
Work-in-progress (WIP) 58,000
Raw materials 82,000
Average payables:
Materials 45,000
Variable and fixed overheads 75,000
Direct labour 9,000
Other relevant information
1 All finished goods inventory and WIP values include raw materials, direct labour, variable production overheads and apportioned fixed production overhead costs.
2 Assume WIP is 70% complete.
3 Assume there are 365 days in one year.
4 Assume that production and sales volumes are the same.
5 The length of the average
Required:
Calculate G & G limited working capital cycle (cash operating cycle) in days.
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