A company has a turnover of SEK 15,000,000. The supplier credit period is on average 28 days. The annual purchases of goods etc. amounts to SEK 9,000,000. Accounts receivable amount to SEK 1,250,000 on average. Cash and cash equivalents account for 6% of sales. The inventory averages SEK 1,500,000. The management's goal is to reduce the working capital requirement by SEK 250,000. The finance department believes that the goal can be achieved by reducing inventory to an average of SEK 1,400,000, extending the average supplier credit period by two days and shortening the average customer credit period by 3 days. Is it true? Points require both motivation and that all calculations are reported.

A company has a turnover of SEK 15,000,000. The supplier credit period is on average 28 days. The annual purchases of goods etc. amounts to SEK 9,000,000. Accounts receivable amount to SEK 1,250,000 on average. Cash and cash equivalents account for 6% of sales. The inventory averages SEK 1,500,000. The management's goal is to reduce the working capital requirement by SEK 250,000. The finance department believes that the goal can be achieved by reducing inventory to an average of SEK 1,400,000, extending the average supplier credit period by two days and shortening the average customer credit period by 3 days. Is it true? Points require both motivation and that all calculations are reported.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter16: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 11P

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Concept explainers

Inventory Accounting

Inventory accounting is that branch of accounting that helps in determining the specific value of assets at different stages of production and development.

Question

A company has a turnover of SEK 15,000,000.
The supplier credit period is on average 28
days. The annual purchases of goods etc.
amounts to SEK 9,000,000. Accounts
receivable amount to SEK 1,250,000 on
average. Cash and cash equivalents account
for 6% of sales. The inventory averages SEK
1,500,000.
The management's goal is to reduce the
working capital requirement by SEK 250,000.
The finance department believes that the goal
can be achieved by reducing inventory to an
average of SEK 1,400,000, extending the
average supplier credit period by two days
and shortening the average customer credit
period by 3 days. Is it true?
Points require both motivation and that all
calculations are reported.

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