Determine the Change in Net Working Capital That Appears Warranted

question 94

Essay

Determine the change in net working capital that appears warranted for the following proposed project: Inventory levels will increase 20% from their current value of $500,000; cash will increase by $25,000; wage accruals will increase by $60,000; machinery will increase by $75,000; accounts receivable-because of a new collection system-will increase by only $15,000; accounts payable will increase by $45,000. What happens to net working capital at the end of the project's life?

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Definitions:

Standard Cost System

An accounting method that uses predetermined costs for products and services to help managers control expenses and operations.

Labor Rate Variance

The variance between the real labor expenses and the anticipated (or benchmark) cost.

Labor Efficiency Variance

The gap between the number of hours actually worked and the number of standard hours projected, multiplied by the standard wage rate.

Direct Labor

The expenses associated with salaries for workers directly involved in the creation or production of products.