Question

# The gross profit of the X enterprise, which has an annual sales of \$ 2,000,000, is...

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?

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

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