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03 Working Capital and Cash Management KEY
Management Accounting (BSMA)
Foundation University (Philippines)
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Chapter 3 Working Capital and Cash Management
Answer Key
PROBLEMS:
3.
1. WC = P250,000 – P125,250 = P124,
- Cash conversion cycle (CCC)
COGS = P720,000/1 = P450,000 = Purchases
ASP = 360/(P450,000/P100,000) = 80 days ACP = 360/(P720,000/P60,000) = 30 days APP = 360/(P450,000/P56,250) = 37 days
CCC = 80 + 30 – 3 7 = 73 days
I TRUE OR FALSE
1 TRUE 16 FALSE
2 FALSE 17 TRUE
3 TRUE 18 FALSE
4 FALSE 19 FALSE
5 TRUE 20 FALSE
6 FALSE 21 TRUE
7 TRUE 22 FALSE
8 FALSE 23 FALSE
9 FALSE 24 TRUE
10 FALSE 25 FALSE
11 FALSE 26 TRUE
12 TRUE 27 FALSE
13 TRUE 28 TRUE
14 TRUE 29 TRUE
15 TRUE 30 FALSE
II MULTIPLE CHOICES QUESTIONS
1 C 11 B 21 C 31 A
2 D 12 D 22 D 32 C
3 D 13 B 23 C 33 D
4 D 14 A 24 A 34 A
5 D 15 A 25 B 35 D
6 B 16 C 26 B
7 D 17 A 27 C
8 D 18 B 28 C
9 C 19 D 29 C
10 A 20 B 30 D
3.
- Cash Conversion Cycle (CCC)
ASP = 360/(P16.8B/P2) = 45 days ACP = 360/(P18B/P2) = 48 days APP = 360/(P11.25B/P1) = 40 days
CCC = 45 + 48 – 40 = 53 days
3.
- Cost of an aggressive strategy for seasonal funding
Cost of short-term financing = 0 P250,00 0 = P 16,
Cost of long-term financing = 0 300,000 = 27,
Total cost of aggressive strategy P43,
- Cost of conservative strategy for seasonal funding Cost of long-term financing = 0 1,100,000 = P99,
- Earnings on surplus balances = 0 550,000 = 27,
Total cost of conservative strategy = P71,
3. Amount of cash collection per day P3,000, Number of days freed on the collection x 1 Amount of cash free P3,000, Increase in compensating balance 700, Increase in cash flow P2,300, Rate of return x 7% Incremental Income P 161,
3.
How much is the advantage or disadvantage of the lockbox system offered by China? Amount of cash freed per day P 500, Multiply Number of days cash is freed 2 Amount of cash freed up P1,000, Multiply Rate of return 10% Expected return (benefit) P 100, Less Cost of lockbox system 96, Net advantage of availing the lockbox system P 4,
How much is the advantage or disadvantage of the lockbox system offered by Land?
Amount of cash freed per day P 420, Multiply Number of days cash is freed 2 Amount of cash freed up P 840, Multiply Rate of return 12% Expected return (benefit) P 100, Less Cost of lockbox system 98, Net advantage of availing the lockbox system P 2,
- Cost of conservative strategy for seasonal funding Cost of long-term financing = 0 1,350,000 = P121,
- Earnings on surplus balances = 0 550,000 = 55,
Total cost of conservative strategy = P66,
3.
- Cost of an aggressive strategy for seasonal funding Cost of short-term financing = 0 P120,00 0 = P 7,
Cost of long-term financing = 0 400,000 = 32,
Total cost of aggressive strategy = P39,
- Cost of conservative strategy for seasonal funding Cost of long-term financing = 0 1,000,000 = P80,
- Earnings on surplus balances = 0 480,000 = 24,
Total cost of conservative strategy = P56,
Aggressive strategy has P16,800 net advantage over the conservative strategy
3 a Current asset ratio P40,000/ P23,000 = 1 x
Net working capital P40,000 - P23,000 = 17,
Return on total assets P6,000 / P60,000 = 10%
b Current asset ratio P40,000/ P11,000 = 3 x
Net working capital P40,000 - P11,000 = 29,
Return on total assets P5,500 / P60,000 = 9%
c Yes From 1 ro 3
d No From ROA of 10% it decreases to 9%
3 P = (2. days) x [(P500M)(.12)] / [(1M checks)(365 days)] = (2x P60,000,000 ) / 365,000,000 checks = 0.
3 .35 = (TF days) x [(P48M)(.12)] / [(60,000 checks)(365 days)]
TF = 1 days 1 days
3 (P30,000,000 / 365 days) (3) (0) = 82,191 x 3 x 11% = 27,
3.
ASP = 360/(P4,374,000/P72,900) = 6 days ACP = 360/(P13,500,0000/P1,200,000) = 40 days APP = 360/(P19,200,0000/384,000) = 12 days
- Operating Cycle = 6 + 40 = 46 days
- Cash Conversion Cycle = 6 + 40 – 12 = 34 days
- The amount of resources needed to support the firm’s cash conversion cycle = P888,
Inventory = P4,374,000 x (6/360) = P72, AR = P13,500,000 x 0 x (40/360) = P1,200, Less AP = P19,200,000 x 0 x (12/360) = P384, Resource Invested = P888,
3.
a. Optimal Transaction Size
MS =√
2 × 12 , 50 0,000 × 4 ×
0 8
MS = P111,803.
b. Average cash balance
MS/2 = P111,803/2 = P55,901.
c. the number of times (during the year) the company has to convert marketable securities to cash
= P12,500,000 x 4 / P111,803. = 447 times or 448 times
d. the total cost of converting marketable securities to cash
= 447 times x 10 = P4,472, or = 448 times x 10 = P4,
e. the total carrying cost of cash
= (P111,803/2) x 0 = P4,472.
03 Working Capital and Cash Management KEY
Course: Management Accounting (BSMA)
University: Foundation University (Philippines)
