Acme Company sells manufactured products for a price of 10 CU per unit.The credit terms received from suppliers of materials are 90 days.It grants credit to its customers for 30 days.Its inventory of finished products turnover is 6;its raw material inventory turnover is 12.Its transformation process takes a week (5 working days;the work is distributed evenly over the five days but all materials consumed are put in production on the first day).Its manufacturing value added to raw materials purchased is 50%.Its gross margin is 40%.Its net margin before tax is 10%.All costs other than materials are paid cash.The working capital need to sell one unit is likely to be:
A) 1,282.5 CU
B) 1,522.5 CU
C) 1,273.5 CU
D) - 912.5 CU

Question

Quizplus · Accepted Answer

The correct answer is A because the working capital need to sell one unit is 1,282.5 CU. This is calculated as follows:Inventory of finished products = 10 CU / 6 = 1.67 CURaw material inventory = 10 CU / 12 = 0.83 CUTotal inventory = 1.67 CU + 0.83 CU = 2.5 CUTransformation process time = 5 daysManufacturing value added = 50%Gross margin = 40%Net margin before tax = 10%All costs other than materials are paid cash.Therefore, the working capital need to sell one unit is:2.5 CU + (10 CU * 0.50 * 0.40 * 0.10 * 5 days) = 1,282.5 CU

Acme Company Sells Manufactured Products for a Price of 10