hi john , this is regarding the june sample questions no 31 - PANGLI
It is the middle of December 20X6 and Pangli Co is looking at working capital management for January 20X7.
Forecast financial information at the start of January 20X7 is as follows:
Inventory $455,000
Trade receivables $408,350
Trade payables $186,700
Overdraft $240,250
All sales are on credit and they are expected to be $3·5m for 20X6. Monthly sales are as follows:
November 20X6 (actual) $270,875
December 20X6 (forecast) $300,000
January 20X7 (forecast) $350,000
Pangli Co has a gross profit margin of 40%.
We have to calculate the operating cycle at start of jan 2007 . what i did was for eg Inventory days 455000/350,000 ( as sales for jan) x 360
But they have taken the cost of sales for 2006 .
Pls help thanks
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Operating cycle
8y ago#1But inventory is valued at cost - not at selling price - and so they are correct to take the cost of sales.
yeah so they would take cost of sales but why have they taken for the entire year???
8y ago#3But we always take the whole year - that is why we are multiplying by 360.
Suppose the cost was 100,000 for the year, and the inventory was 10,000. Then there is enough inventory to last for 10,000/100,000, i.e 1/10 of a year.
Have you watched my free lectures on this?
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