Page 135 - Corporate Finance PDF Final new link

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BRILLIANT’S Working Capital Management 135

Average Stock of WIP*
2. WIP Conversion Period = #
Daily Average Production Cost
Where,

Opening Stock of WIP + Closing Stock of WIP
* Average Stock of WIP =
2
Total Production Cost
# Daily Average Production Cost =
365 or 360
Total Production Cost = Direct Material + Direct Labour + Factory Overheads + Opening
Stock of WIP – Closing Stock of WIP.

Average stock of finished goods*
3. Finished Goods Storage Period = #
Daily average cost of goods sold

Opening stock + Closing stock
* Average stock of finished goods =
2
Total cost of goods sold
# Daily average cost of goods sold =
365 or 360
Cost of goods sold is calculated by adding ~oMo JE JwS²>g H$s H$m°ñQ> {\${ZíS> JwS²>g Ho$ AmonqZJ
excise duty with factory cost after adjusting Am¡a ŠbmoqOJ ñQ>m°H$ H$mo ES>OñQ> H$aZo Ho$ ~mX EŠgmBO
opening and closing stock of finished goods. S²>`yQ>r H$mo \¡$ŠQ>ar H$m°ñQ> Ho$ gmW Omo‹S>H$a àmá H$aVo h¢&
Administrative, selling and distribution ex- ES>{_{ZñQ´>o{Q>d, goqbJ Am¡a {S>ñQ´>rã`yeZ EŠgnoÝgog Bg_|
penses are not considered because in financial em{_b Zht {H$E OmVo Š`m|{H$ \$m`Z|{e`b AH$mC§qQ>J _|
accounting, stock of finished goods is valued at
production cost or factory cost. {\${ZíS> JwS²>g H$m ñQ>m°H$, àmoS>ŠeZ H$m°ñQ> `m \¡$ŠQ>ar
H$m°ñQ> na _yë`m§{H$V {H$`m OmVm h¡&

Average debtors*
4. Debtors collection period = #
Credit sales per day

Opening debtors + Closing debtors
* Average debtors =
2
Total credit sales
# Credit sales per day =
365 or 360

Average Creditors*
5. Creditors payment period = #
Credit Purchase Per day

Opening creditors + Closing creditors
* Average creditors =
2