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WorksheetsFINANCIAL MANAGEMENT
Total questions: 20
Worksheet time: 14mins
What is the operating cycle?
The time taken to convert cash into goods
The time taken to convert cash into cash again
The time taken for the production process
The time taken to calculate profits
Which of the following describes the correct order of the operating cycle?
Cash → Work in Progress → Raw Materials → Finished Goods → Sundry Debtors → Bills Receivables → Cash
Cash → Raw Materials → Work in Progress → Finished Goods → Sundry Debtors → Bills Receivables → Cash
Raw Materials → Work in Progress → Finished Goods → Sundry Debtors → Bills Receivables → Cash → Raw Materials
Cash → Sundry Debtors → Finished Goods → Work in Progress → Raw Materials → Bills Receivables → Cash
What does the operating cycle measure?
Profitability of the business
Time from production to collection of cash
Efficiency in production
Total sales over a period
Which of the following statements is true regarding working capital?
It represents excess of current liabilities over current assets.
It is used for day-to-day business operations.
It finances fixed assets of the business.
Total liabilities of the business
Other term for working capital
Fixed capital
Long-term capital
Circulating capital
Retained earnings
Permanent Working Capital means
Funds that are temporarily locked in assets
Funds permanently locked in current assets to ensure smooth business operations
Funds used for investment in fixed assets
Excess funds available for long-term loans
Purpose of Regular Working Capital is
To expand the business operations
To handle contingencies and uncertainties
To keep the primary circulation of cash for wages, salaries, etc.
To purchase additional machinery
Reserve Margin Working Capital used for
Handling business contingencies like strikes and depressions
Expanding product lines
Investing in the stock market
Repaying long-term debts
Variable Working Capital refer to
Working capital that remains fixed throughout the year
Temporary and fluctuating working capital that changes with business volume
Funds locked permanently in current assets
Funds used only for unexpected expenses
Seasonal Variable Working Capital required for
During unexpected emergencies
During active business seasons of the year
long-term investment
manage fixed assets
Purpose of Special Variable Working Capital is
To pay salaries and wages regularly
To handle special operations or unexpected events like marketing campaigns
To invest in permanent assets
To expand the working area
Formula to calculate raw materials held in stock
Debtors÷Sales×365
Average stock of raw materials÷Raw material consumption×365
Average stock of finished goods÷Cost of sales×365
Creditors÷Sales×365
Raw materials : 2 Months
W.I.P :15 days
Finished goods:1 month
Average debt collection period:2 Months
Average payment period:45 days
calculate operating cycle
(a)
Projected annual sales Rs. 9,00,000
Percentage of net profit to cost of sales 20%
calcuate cost of sales
(a)
Expected level of production 3,00,000 units
Finished goods remain in stock on an average -3 months
Expected ratios of cost to selling price:
a) Raw materials -60%
b) Direct wages - 10%
c) Overheads- 20%
Selling price per unit – Rs.10
calcuate cost of finished goods
(a)
Raw materials Rs.160
Direct labour Rs.60
Overheads Rs.120
credit allowed to debtors is 8 weeks. One fourth of the sales are made on cash basis.
calculate debtors value
(a)
Raw materials Rs.400
Direct labour Rs.150
Overheads Rs.300
Output – 52,000 units
Work in progress - average 2 weeks
calculate the cost of WIP
(a)
Materials used 1,08,000
Wages 96,000
Administrative expenses 30,000
Credit given by suppliers - 2 months
Lag in payment of wages - ½ month
Lag in payment of administrative expenses -1 month
calculate the value of current liabilities
(a)
Wages - 52,000; Stores & materials -9,600; Office salaries- 12,480 ; Rent -2,000 ; Other expenses- 9,600
Lag in payment of all expenses:
Wages 1 ½ weeks
Stores and materials 1 ½ months
Office salaries ½ month
Rent 6 months
Other expenses 1 ½ months
calcluate the value of current liabilities
(a)
Spontaneous financing includes
accounts receivable.
accounts payable.
short-term loans.
a line of credit.
