Management Accounting Short Note-'Production and Operating Cycle'
Posted by Ripon Abu Hasnat on Sunday, November 29, 2015 | 0 comments
The period during which the objects of labor (raw products and materials) remain in the production process, from the beginning of manufacturing through the output of a finished product. In addition to the working time, the production cycle includes interruptions in production owing to physical, chemical, and biological (natural) processes (for example, the period required for tanning leather); the character of the objects of labor; or the technology and organization of production.
An operating cycle is the length of time between the acquisition of inventory and the sale of that inventory and subsequent generation of a profit. The shorter it is, the faster a business gets a return on investment (ROI) for the inventory it stocks. As a general rule, companies want to keep their operating cycles short for a number of reasons, but in certain industries, a long one is actually the norm. These cycles are not tied to accounting periods, but are rather calculated in terms of how long goods sit in inventory before sale.
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