Mona PLC is a Zambian well-known company that sells goods locally within Zambia. The recently appointed Management Accountant of Mona PLC has been studying the working capital management of the company and has congregated the following information: Inventory management the current policy is to order 100,000 units when the inventory level reduces to 35,000 units. Prediction demand to meet production requirements during the next year is 625,000 units. The cost of placing and processing an order is $250, while the cost of holding a unit in stores is $0.50 per unit per year. Both costs are expected to be constant during the next year. Orders are received two weeks after being placed with the supplier. You should assume a 50- week year and that demand is constant throughout the year. Accounts receivable management Local customers are allowed 30 days’ credit, but the financial statements of Mona PLC shows that the average accounts receivables period in the last financial year was 75 days. The Management Accountant also noted that bad debts as a percentage of sales, which are all on credit, increased in the last financial year from 6% to 10%. Required: (a) Find the objective of working capital management and discuss the conflict that may arise between them.
Mona PLC is a Zambian well-known company that sells goods locally within Zambia. The recently appointed
Inventory management the current policy is to order 100,000 units when the inventory level reduces to 35,000 units. Prediction demand to meet production requirements during the next year is 625,000 units. The cost of placing and processing an order is $250, while the cost of holding a unit in stores is $0.50 per unit per year. Both costs are expected to be constant during the next year. Orders are received two weeks after being placed with the supplier. You should assume a 50- week year and that demand is constant throughout the year.
Local customers are allowed 30 days’ credit, but the financial statements of Mona PLC shows that the average accounts receivables period in the last financial year was 75 days. The Management Accountant also noted that
Required:
(a) Find the objective of working capital management and discuss the conflict that may arise between them.
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