The correct answer is A. Raw material conversion period, work-in-progress conversion period, Finished goods conversion period, Receivables conversion period.
The operating cycle of a manufacturing company is the length of time it takes to convert raw materials into finished goods and then sell those goods and collect cash from customers. It is calculated by adding the raw material conversion period, work-in-progress conversion period, and receivables conversion period.
The raw material conversion period is the time it takes to purchase raw materials, convert them into work-in-progress, and then finish them into finished goods. The work-in-progress conversion period is the time it takes to convert work-in-progress into finished goods. The receivables conversion period is the time it takes to sell finished goods and collect cash from customers.
The operating cycle is an important measure of a company’s efficiency. A shorter operating cycle indicates that a company is able to convert its resources into cash more quickly, which can lead to higher profits.
Here is a brief explanation of each option:
- Option A: Raw material conversion period, work-in-progress conversion period, Finished goods conversion period, Receivables conversion period. This is the correct sequence of the various stages of the operating cycle.
- Option B: Raw material conversion period, work-in-progress conversion period, Creditors payment period, Receivables conversion period. This option is incorrect because it includes the creditors payment period, which is not a stage of the operating cycle.
- Option C: Creditor payment period, Raw material conversion period, Receivables conversion period, work-in-progress conversion. This option is incorrect because it includes the creditors payment period, which is not a stage of the operating cycle, and it also has the receivables conversion period before the work-in-progress conversion period, which is not the correct order.
- Option D: Raw material conversion period, Finished goods conversion period, work-in-progress conversion period, Receivables conversion period. This option is incorrect because it has the finished goods conversion period before the work-in-progress conversion period, which is not the correct order.