Raw Materials stock turnover

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Registered Posts: 6,970 Beyond epic contributor 🧙‍♂️
Just revisiting june 2010 MAC paper

And confused by how to calculate the above any help would be great

Thanks

Vic

• Registered Posts: 6,970 Beyond epic contributor 🧙‍♂️
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Budgeted sales in units 25,000
Actual sales in units 23,000
£
Total sales revenue 5,750,000
Production costs
Materials 3,680,000
Labour 460,000
Energy costs 120,000
Other production costs 116,000
Depreciation 500,000
Total production costs 4,876,000
Administration costs and interest paid 250,000
Net profit 124,000
Extracts from the balance sheets
Stocks of raw materials 1,250,000
Stocks of finished goods 900,000
Total debt (borrowing) 1,250,000
Net assets 2,650,000
• Registered Posts: 2,453 Beyond epic contributor 🧙‍♂️
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Stock of raw materials / materials x 365

or

materials / stock of raw materials = ... to 1.

Hope that helps!
• Registered Posts: 6,970 Beyond epic contributor 🧙‍♂️
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thanks rinske
• Registered Posts: 23 New contributor 🐸
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Hi A-vic and Rinske,

I'm confused now! My Kaplan book says Stock Holding Period is caluculated as
Stocks/Cost of Sales x 365.

I've been stuck on the question on the June '10 paper too because of this - do you know why there are 2 calculations and which one to use when?

Thanks,
• Registered, Moderator Posts: 2,034 mod
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There are two main types of stock (three if you include work in progress)

so it is natural that there will be diffferent ways of finding the number of days that the closing stock is worth.

Raw materials have cost whatever the raw materials cost (why would you value the period of time you are holding the raw materials for using the cost of sales?)

Cost of sales includes raw materials, labour costs, overhead absorbed: so it is useful for a calculation of the holding period of finished goods.

Please try to think about what you are trying to measure. If you are treating these ratios as little more than aritmetic, then you are missing out on real understanding.
Sandy
sandy@sandyhood.com
www.sandyhood.com
• Registered Posts: 23 New contributor 🐸
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Yep, silly mistake confusing materials and stock, thanks for your help Sandy. I find one of the hardest things about distance learning is not having someone to point out my blonde moments!