- 8 Marks
Question
Working Capital Calculation
A company has annual sales revenues of GH¢45 million and the following working capital periods:
| Working Capital Item | Period (months) |
|---|---|
| Inventory conversion period | 2.5 |
| Accounts receivable collection period | 2.0 |
| Accounts payable payment period | 1.5 |
Production costs are 70% of sales revenue.
Required:
Calculate the total amount held in working capital excluding cash and cash equivalents.
Answer
Working Capital Calculation:
- Inventory = GH¢45 million × 0.7 × 2.5/12 = GH¢6.5625 million
- Accounts Receivable = GH¢45 million × 2/12 = GH¢7.5 million
- Accounts Payable = GH¢45 million × 0.7 × 1.5/12 = GH¢3.9375 million
Total Working Capital = GH¢6.5625 million + GH¢7.5 million – GH¢3.9375 million = GH¢10.125 million
- Tags: Accounts Payable, Accounts Receivable, Budgeting, Costing, Inventory
- Level: Level 1
- Topic: Budgeting, Cost and Cost Behaviour
- Series: Nov 2024
- Uploader: Salamat Hamid