Circulating capital is best described as: The materials in inventory that go into or are consumed in making the finished product and all the finished goods in inventory. The tools used in making the finished product. When a product is built by moving it from station to station throughout a factory where workers focus on one small job that is only a portion of the whole process of production. Money that moves through different divisions of a business to be used in the production process.

Capital is term that broadly describes anything that grants value or benefit to its owner, which include machinery, factory, financial assets, any many more. It is also the cash that is used for investment or for productive purposes. Circulating capital can also be referred to as working capital. It is the resource in current or short term assets that a company keeps that can be used to produce goods and services.Circulating capital is the capital used up in the process of production. Tools are only a part of the capital used in the production process and cannot be considered circulating capital as it is not consumed or used up in the production and transformed into another good that maybe an intermediate good or a final good. So option 2 does not describe circulating capital. Option 3 just describes the process of production of a good and not the circulating capital, so it is not correct. Money moving through different business divisions is a process termed as cash flows. It cannot describe a circulating capital though circulating capital includes cash, but that cash is used to cover the expenses of the day to day operations. So, option 4 is not correct. Option 1 best describes circulating capital as circulating capital includes inventories to be used in the production of final goods or final good inventories. Such capital are consumed in the production process to generate final goods or the intermediate goods for further production.

Answered: Circulating capital is best described…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Circulating capital is best described as:

		The materials in inventory that go into or are consumed in making the finished product and all the finished goods in inventory.
		The tools used in making the finished product.
		When a product is built by moving it from station to station throughout a factory where workers focus on one small job that is only a portion of the whole process of production.
		Money that moves through different divisions of a business to be used in the production process.

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