Operating cycle consists of the following important stages: 1. Raw Material and Storage Stage, (R) 2. Work in Process Stage, (W) 3. Finished Goods Stage, (F) 4. Debtors Collection Stage, (D) 5. Creditors Payment Period Stage. (C) O-R.W.F.D-C R W Fig. 10,8 Workng Capital Cycle Each component of the operating cycle can be calculated by the following formula: Average Stock of Raw Material R- Average Raw Material Consumption Per Day w Average Work in Process Inventory Average Cost of Production Per Day t11 Average Inventory Average Cost of Goods Sold Per Day Average Book Debts D- Average Credit Sales Per Day Average Trade Creditors Average Credit Purchase Per Day Exercise 1 From the following information extracted from the books of a manufacturing company, compute the operating cycle in days and the amount of working capital required: Period Covered Average period of credit allowed by suppliers Average Total of Debtors Outstanding Raw Material Consumption Total Production Cost Total Cost of Sales Sales for the year Value of Average Stock maintained: Raw Material Work-in-progress Finished Goods 16 days 480 00 4,400 00 10,000 00 10,500 00 16,000 00 32000 350 00 260 00