Question

5. Kakl-Pee Itd has provided you with the following data regarding next year's budget that has just been presented to the board by the Financial Controller of the company. Basic data Budgeted average amount to be outstanding GH 340,000 180,000 150,000 х 10 priceps 300,000 Ayit Bra (211,200) 631.500 Stock: Raw Materials Work-in-progress Finished goods Debtors Creditors Budgeted average working capitai 4 ~ kb The following daily averages are available GH Sales 4,620 Cost of sales 3,600 Purchases 1,920 You are required to compute the working capital cycle based on the above data and advice management on each stage of the cycle. 10 marks

provide explanation to the answers

Answer 1

Average value of inventory = Working Capital - Debtors - Creditors

=631500 - 300000 - 211200

= 542700

Cash Conversion Cycle = Inventory Period + Receivable Period - Payable Period

Inventory Period = 542700/3600 = 151 Days

Receivable Period = 300000/4620 = 65 Days

Payable Period = 211200/3600 = 59 Days

Cash Conversion Cycle = 151 + 65 - 59 = 157 Days

The receivable period is longer than the payable period indicating low bargaining power over the supplier as well as the distributors