Management of Rose Ltd. is contemplating the next year budget, and hence required to work out the working capital requirements for the next year. The following information has been provided by the budget committee. A: Es

CS Professional · Financial, Treasury and Forex Management · PYQS · June 2018
Management of Rose Ltd. is contemplating the next year budget, and hence required to work out the working capital requirements for the next year. The following information has been provided by the budget committee. A: Estimated value for per unit of finished product Particulars Amount (Per Unit) Raw materials 60 Direct wages 30 Cash based Manufacturing and administrative overhead 20 Depreciation 10 Selling and distribution overhead 10 Total cost 130 Selling price 200 Additional information provided by the concerned committee member of budget committee is as under. (1) Expected level of activity would be 60,000 units. (2) Raw material cost consists of the following: Particulars ₹ per unit Dried milk powder 40 Coco butter 18 Vanila essence 2 (3) Raw materials are purchased from different suppliers, and those suppliers are extending different credit period as indicated hereunder : Particulars Credit period in months Dried milk powder 2 Coco butter ½ Vanila essence 1 (4) Product is in process for a period of ½ month. Production process requires 100% of dried milk powder and coco butter in the beginning of the process. Vanila essence is required at a uniform and constant rate during the process. (5) Direct wages and other overhead accrue at a uniform rate throughout production process. (6) Past trends indicate that dried milk powder is required to be stored for two months period and other materials to be stored for one month, before it would be given for the production process. (7) Finished goods are kept in stock for a period of one month. (8) It is estimated that one-fourth of total sales would be on cash basis. (9) The past experience also indicates that it took generally two months time to collect the receivables from the debtors. (10) Average time-lag in payment of all overhead is one month and ½ month in case of labour payment. (11) Desired cash balance to be maintained throughout the year at the level of ₹1 lakh. From the above information, you are required to determine the net working capital requirement on cash basis.

Answer & Explanation:

Statement showing the calculation of working capital requirement Particulars Amount (₹) CURRENT ASSETS 1. Raw material Dried milk powder (60,000*40*2)/12 4,00,000 Coco butter (60,000*18*1)/12 90,000 Vanila essence (60,000*2*1)/12 10,000 5,00,000 2. WIP (60,000*84*0.5)/12 2,10,000 3. Finished goods (60,000*110*1)/12 5,50,000 4. Receivables (60,000*120*2)/12*75% 9,00,000 5. Cash in hand 1,00,000 Total (A) 22,60,000 CURRENT LIABILITY 1. Creditors Dried milk powder (60,000*40*2)/12 4,00,000 Coco butter (60,000*18*0.5)/12 45,000 Vanila essence (60,000*2*1)/12 10,000 4,55,000 2. Outstanding overheads (60,000*30*1)/12 1,50,000 3. Outstanding wages (60,000*30*0.5)/12 75,000 Total (B) 6,80,000 WORKING CAPITAL (A-B) 15,80,000 Working notes: Calculation of per unit cost of WIP Particulars (₹) Dried milk powder 40 Coco butter 18 Vanilla essence (2 x 50%) 1 Direct wages (30 x 50%) 15 Manufacturing & administrative overheads (20 x 50%) 10 Total cost for the purpose 84

Topics: Working Capital Management

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