The amount of working capital required by a company can be estimated from information on the value of relevant working capital inputs and outputs, such as raw material costs and credit purchases, together with information on the length of the components of the cash conversion cycle. Assume that Carmed plc expects credit sales of £20 million in the next year and has budgeted production costs as follows:£m Raw materials direct labor production overhead total production costs18Raw materials are in stock for an average of three weeks and finished goods are in stock for an average of four weeks. All raw materials are added at the start of the production cycle, which takes five weeks and incurs labor costs and production overheads at a constant rate. Suppliers of raw materials allow four weeks’ credit, whereas customers are given 12 weeks to pay. If the production takes place evenly throughout the year, what is the total working capital requirement?

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Solution Data Expected Credit Sales 20 Raw Materia... View the full answer