Question

The gross profit of the X enterprise, which has an annual sales of $ 2,000,000, is $ 600,000. The activity information of the various elements of the X enterprise is as follows (days in the year 365)

Waiting time of raw material in stock: 20days

Time spent in production: 5 days

Maturity given to customers: 30 days
Stock time of products: 20 days

Number of days that cash and bank cash will cover against average daily payments: 5 days

Calculate the working capital need of firm X?

How much money will X allocate to stocks?

Answer 1

Working Capital Need:

Annual Sales:$2000000

Gross Profit:$600000

Cost of goods sold=2000000-600000=$1400000

Maturity Given to customers=30 days

Working Capital required for receivables=(1400000/365)*30=$115,068

 Stock time of products: 20 days

Working Capital Required for Finished Goods =(1400000/365)*20=$76,712

Time spent in production: 5 days

Working Capital Needed for Work in process Inventory=(1400000/365)*5=$19178

Waiting time of raw material in stock: 20days

Working Capital Needed for Raw Materials Inventory =(1400000/365)*20=$76,712

Number of days that cash and bank cash will cover against average daily payments: 5 days

Requirement of Cash =(1400000/365)*5=$19,178

Receivables	$115,068
Finished goods Stock	$76,712
Work in process	$19,178
Raw Materials Inventory	$76,712
Cash	$19,178
Total Working Capital Needed	$306,849

Amount Allocated to Stocks=$76,712