Topics: Inventory, Balance sheet, Generally Accepted Accounting Principles Pages: 5 (1352 words) Published: April 7, 2013
Table of Contents

Section A
(b)Internal rate of return of the new project
(c) Explain main principles to differentiate between relevant and irrelevant cost2 (d)Explain opportunity cost2
Section B3
Management of working capital4
Meaning and Concept of Working Capital management5
The Importance of Good Working Capital Management5
Approaches to Working Capital Management5

(c) Explain main principles to differentiate between relevant and irrelevant cost

Relevant Cost that is used to describe costs that is specific to management's decisions. The concept of relevant costs eliminates unnecessary data that could complicate the decision-making process. Relevant costs can be very important when it is determining whether to sell or keep a business unit, make or buy an item, or accept a special order. Also relevant are expected future costs that differ among alternative courses of action and may be eliminated if some economic activity is changed or deleted. During the "Sok" project, labour cost and material cost are relevant cost,labour cost can influence company decide whether have these employee. Company can have a good budget of this cost to continue their new factory plan. Material cost also can decide this project can completed successfully.

Irrelevant costs are unaffected by management’s actions. Sunk costs are an example of irrelevant costs. Sunk costs are past costs that are now irrevocable. For example, the depreciation on machinery during the "Sok" project, when confronted with a choice, they are not relevant and should not be considered in a decision-making analysis.

(d)Explain opportunity cost

Opportunity is the present value of the income that could be earned (or saved) by investing in the most attractive alternative to the one being considered. The cost of pursuing one course of action in terms of the foregone return offered by the most attractive alternative.

For example: if a gardener decides to grow carrots, his or her opportunity cost is the alternative crop that might have been grown instead (potatoes, tomatoes, pumpkins, etc.).

In both cases, a choice between two options must be made. It would be an easy decision if you knew the end outcome; however, the risk that you could achieve greater "benefits" (be they monetary or otherwise) with another option is the opportunity cost.

Section B:

To: Mr. Best
Data: 30th April 2012
Subject: working capital management explained


Working capital is the money a business has available to sustain its operations. It's the capital available to purchase inventory, pay employees, keep the lights on, and finance other short term expenditures. This makes managing working capital a critical business skill. If there is no working capital, there is no business.

Thousands of companies fail each year due to poor working capital management practices. Entrepreneurs often don't account for short term disruptions to cash flow and are forced to close their operations. Many of these companies have viable business models, and would have otherwise succeeded had they better managed their working capital. I will explain the concept and specifically deal with how aspects of working capital management important for our construction industry of following report.


Management of working capital:

A firm must have adequate working capital, i.e.; as much as needed the firm. It should be neither excessive nor inadequate. Both situations are dangerous. Excessive working capital means the firm has idle funds which earn no profits for the firm. Inadequate working capital means the firm does not have sufficient funds for running its operations. It will be interesting to understand the relationship between working capital, risk and return.

The basic objective of working...
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