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I am unsure why cost of sales is calculated as 3500000 x (1 – 0.4) = $2100000 for working out the cash operated cycle.
Hi afraansar, I attempted this question a month or so ago, I’m taking the FM exam next Friday. this is how I did it. I hope it helps.
Revenue for 20X6 is $3.5m (given in question).
Gross profit margin is 40% (also given in question).
Gross profit is therefore 40% of revenue, giving $1.4m as gross profit. (gross profit / 2,100,000 = 40% then I rearranged formula)
Therefore cost of sales is $2.1m (the difference between the two).
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