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CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management

Ranjit Traders has raw material storage period of 30 days, WIP period of 10 days, finished goods storage period of 20 days, and receivables collection period of 40 days. Creditors are paid after 25 days. What is the operating cycle and cash cycle respectively?

The operating cycle is 100 days, the sum of raw material, WIP, finished goods and receivables periods (30+10+20+40). The cash cycle is 75 days because the 25-day credit period from creditors is deducted from the operating cycle.

  1. A100 days and 75 daysCorrect
  2. B100 days and 125 days
  3. C75 days and 100 days
  4. D60 days and 35 days

Explanation

Operating cycle = 30 + 10 + 20 + 40 = 100 days. Cash cycle = operating cycle minus creditors period = 100 - 25 = 75 days. Adding the payables period (125) is the sign error in the second option.

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