Question

Compute the dollar amount of working capital that can be reduced at year-end if the ending heel raw material inventory is cut by half.

Answer 1

Note: The full question is attached as picture below

a. No of units Cost per unit Total Cost

Beginning Inventory 1,200 $8 $9,600

Add Purchase 35,000 $8 $280,000

Inventory available for 36,200 $8 $289,600

production

Less Inventory transferred to 33,200 $8 $265,600

production (16,600 Pairs*2 Heels)

Ending Inventory 3,000 $8 $24,000

b. Working capital will be reduced by: (3,000*$8)/2 = $12,000