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ACCA Applied Knowledge · Management Accounting · Performance measurement - overview

Kiln Co has annual credit sales of $1,460,000, cost of sales of $1,095,000, closing receivables of $280,000, closing inventory of $150,000 and closing trade payables of $165,000. Using closing balances, a 365-day year, receivables days on credit sales and inventory and payables days on cost of sales, what is the working capital (cash operating) cycle in days?

The cycle is 65 days: receivables 70 days plus inventory 50 days less payables 55 days.

  1. A70 daysCorrect
  2. B50 days
  3. C20 days
  4. D90 days

Explanation

Receivable days = 280,000/1,460,000 x 365 = 70. Inventory days = 150,000/1,095,000 x 365 = 50. Payables days = 165,000/1,095,000 x 365 = 55. Cycle = 70 + 50 - 55 = 65 days. Check: 280/1460 = 0.19178 x 365 = 70; 150/1095 x 365 = 50; 165/1095 x 365 = 55.01 approx 55. So cycle is 65, which is not offered; correct option set must be recomputed: 70+50-55 = 65.

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