EXHIBIT $21\mathrm{.}4$ Sample Working Capital Analysis

EXHIBIT $21\mathrm{.}5$ Sample Controller's Notes on the Working

Capital Analysis in Exhibit $21\mathrm{.}4$

The company's working capital investment has increased by $$1,200,000$ in the past three

months. This is due to several factors, one of which is the conversion to a new motor for the

Roto$-$Wash clothes washer before the old stock had been fully depleted. The inventory

investment in the old motors is $$250,000.$ Also, the production department made an

excessively long production run on the Roto$-$Wash, resulting in an excess finished goods

inventory of $$300,000.$ Further, our accounts receivable from CAS $($Central Appliance

Stores$)$ are overdue by $$500,000,$ which was caused by the preplacement of a $$500,000$

customer order prior to approval by the credit department, with override approval by the

executive committee. Finally, the controller chose to take early payment discounts that

resulted in a net decrease in accounts payable of $$50,000.$ Since the company has now

used up its entire line of credit and has no spare cash, we recommend the following

actions to reduce the company's investment in working capital:

Reverse the engineering change order for Roto$-$Wash motors until the old stock has

been depleted, which should be three months, based on current sales levels, and which

is subject to the following item.

Stop production of the Roto$-$Wash for two months, which will allow demand to catch up

with current finished goods inventory stocks.

Put an immediate credit hold on Credit Appliance Stores until its $$500,000$ overdue

invoice is paid, followed by the imposition of a revised $$100,000$ credit limit$.$

Stop taking early payment discounts of all kinds until the working capital investment

allows enough excess cash flow to begin taking them again.

Required:

In $3-5$ sentences, please comment on each of the recommended actions $($EXHIBIT $21\mathrm{.}5)$ by explaining

what is the expected or desired impact$/$result on the working capital. How will each recommendation

improve the working capital of the company?

A$.(3-5$ Sentences$)$

B$.$ Sentences