From the following information provided, you are required to calculate the working capital requirement for the company. Present your calculation in a Tabular Form. (a) Cost per unit Raw Material: ₹ 208 Direct Labour: ₹ 7

CS Professional · Financial, Treasury and Forex Management · PYQS · December 2018
From the following information provided, you are required to calculate the working capital requirement for the company. Present your calculation in a Tabular Form. (a) Cost per unit Raw Material: ₹ 208 Direct Labour: ₹ 78 Overheads: ₹ 156 Total Cost: ₹ 442 Profit: ₹ 78 Selling Price per unit: ₹ 520 (b) (i) Raw material will be in stock on an average for one month holding. (ii) Work in Process will comprise of 100% of material, 50% of wages and overheads for average of half a month. (iii) Finished goods will be in stock on average of one month. (iv) Credit allowed by suppliers of Raw Material is one month. (v) Time lag in payment of wages is 1½ weeks. (vi) Time lag in payment of overheads is 1 month. (vii) Time lag in payment from Debtors is 2 months. (viii) Cash Balance is to be maintained at a minimum of ₹ 4,80,000. (c) Level of Activity: Production of 70,000 units per annum. It is to be assumed that production is carried on evenly throughout the year and wages and overheads accrue similarly. (d) Calculation to be based on 30 days a month and 52 weeks in a year. (e) Finished goods will be valued at Total Cost.

Answer & Explanation:

Statement showing Working capital requirement CURRENT ASSETS Amount (₹) Amount (₹) Raw material (70,000 units * ₹ 208 * 30/360) 12,13,333 Work in progress: Raw material (70,000 units * ₹ 208 * 15/360) 6,06,667 Direct labour (70,000 units * ₹ 78 * 15/360 * 50%) 1,13,750 Overheads (70,000 units * ₹ 156 * 15/360 * 50%) 2,27,500 9,47,917 Finished goods (70,000 units * ₹ 442 * 30/360) 25,78,333 Debtors (70,000 units * ₹ 520 * 60/360) 60,66,667 Cash balance 4,80,000 Total Current Assets (A) 1,12,86,250 CURRENT LIABILITY Creditors (70,000 units * ₹ 208 * 30/360) 12,13,333 Wages (70,000 units * ₹ 78 * 1.5/52) 1,57,500 Overheads (70,000 units * ₹ 156 * 30/360) 9,10,000 Total Current liabilities (B) 22,80,833 WORKING CAPITAL (A-B) 90,05,417 Note: In the above solution Debtors are calculated on selling price. Debtor can also be calculated on cost price.

Topics: Working Capital Management

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