EXHIBIT $21\mathrm{.}5$ Sample Controller's Notes on the Working

Capital Analysis in Exhibit $21\mathrm{.}4$

The company's working capital investment has increased by $$1,200,000$ in the past three months. This is due to several factors, one of which is the conversion to a new motor for the Roto$-$Wash clothes washer before the old stock had been fully depleted. The inventory investment in the old motors is $$250,000.$ Also, the production department made an excessively long production run on the Roto$-$Wash, resulting in an excess finished goods inventory of $$300,000.$ Further, our accounts receivable from CAS $($Central Appliance Stores$)$ are overdue by $$500,000,$ which was caused by the preplacement of a $$500,000$ customer order prior to approval by the credit department, with override approval by the executive committee. Finally, the controller chose to take early payment discounts that resulted in a net decrease in accounts payable of $$50,000.$ Since the company has now used up its entire line of credit and has no spare cash, we recommend the following actions to reduce the company's investment in working capital:

$$ Reverse the engineering change order for Roto$-$Wash motors until the old stock has been depleted, which should be three months, based on current sales levels, and which is subject to the following item.

$$ Stop production of the Roto$-$Wash for two months, which will allow demand to catch up with current finished goods inventory stocks.

$$ Put an immediate credit hold on Credit Appliance Stores until its $$500,000$ overdue invoice is paid, followed by the imposition of a revised $$100,000$ credit limit$.$

$$ Stop taking early payment discounts of all kinds until the working capital investment

allows enough excess cash flow to begin taking them again.

Required:

In $3-5$ sentences, please comment on each of the recommended actions $($EXHIBIT $21\mathrm{.}5)$ by explaining what is the expected or desired impact$/$result on the working capital. How will each recommendation improve the working capital of the company?

A$.(3-5$ Sentences$)$

B$.(3-5$ Sentences$)$

C$.(3-5$ Sentences$)$

D$.(3-5$ Sentences$)$