3. The Green-line Co. produces 1,500 batteries per day at a cost of $6 per batte

Question

3. The Green-line Co. produces 1,500 batteries per day at a cost of $6 per battery for materials and labor. It takes the firm 22 days to convert raw materials into a battery and make a sale. Green-line allows its customers 40 days in which to pay for the batteries, and the firm pays its suppliers in 30 days. Under these conditions, what is the dollar amount of working capital Green-line must finance?

3. The Green-line Co. produces 1,500 batteries per day at a cost of $6 per battery for materials and labor. It takes the firm 22 days to convert raw materials into a battery and make a sale. Green-line allows its customers 40 days in which to pay for the batteries, and the firm pays its suppliers in 30 days. Under these conditions, what is the dollar amount of working capital Green-line must finance?

3. The Green-line Co. produces 1,500 batteries per day at a cost of $6 per battery for materials and labor. It takes the firm 22 days to convert raw materials into a battery and make a sale. Green-line allows its customers 40 days in which to pay for the batteries, and the firm pays its suppliers in 30 days. Under these conditions, what is the dollar amount of working capital Green-line must finance?

Explanation / Answer

Working capital required=(no of battery*selling price)*(DIO+DSO-DPO)

=(1500*6)*(22+40-30)

=288000

DIO= inventory to finished goods time taken

DSO=finished goods to sale time taken

DPO= payment from suppliers time taken

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