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WORKING CAPITALWORKING CAPITAL

REQUIREMENTSREQUIREMENTS

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Prepare an estimate of working capital from thePrepare an estimate of working capital from the

following information:following information:

Monthly production and sales 5000 units to be soldMonthly production and sales 5000 units to be soldat Rs. 15 each.at Rs. 15 each.

The per unit cost : material Rs. ! wages Rs.".50 andThe per unit cost : material Rs. ! wages Rs.".50 and

e#penses 1.50e#penses 1.50

Raw materials and finished goods will remain inRaw materials and finished goods will remain in

stock for 1.5months and $ months.stock for 1.5months and $ months.

Process time 1 month.Process time 1 month. %redit allowed to debtors and recei&ed from%redit allowed to debtors and recei&ed from

creditors will be $ months and 1 month respecti&ely.creditors will be $ months and 1 month respecti&ely.

 

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The board of directors wishes to know the amt ofThe board of directors wishes to know the amt of

working capital re'uirement:working capital re'uirement:

Production during the year 0!000 unitsProduction during the year 0!000 units The ratio of cost to selling price are material 0(The ratio of cost to selling price are material 0(

wages 10( and o&erheads $0(.wages 10( and o&erheads $0(.

Raw materials are e#pected to remain in stock for $Raw materials are e#pected to remain in stock for $months and in process for 1 month.months and in process for 1 month.

)inished goods * months! creditors allow $ months)inished goods * months! creditors allow $ months

credit and debtors allowed * months credit.credit and debtors allowed * months credit. +elling price per unit is Rs.5+elling price per unit is Rs.5

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, proforma cost sheet pro&ides the following data p.u., proforma cost sheet pro&ides the following data p.u.

Raw materialsRaw materials 100100

-abour -abour  *.50*.50

/&erheads/&erheads 55

Total costTotal cost $1$.5$1$.5

ProfitProfit *.5*.5

+elling price+elling price $50$50

Raw material 1 month in stock! P one week and finishedRaw material 1 month in stock! P one week and finished

goods $ weeks.goods $ weeks.

%redit allowed by suppliers * weeks 2 " weeks allowed to%redit allowed by suppliers * weeks 2 " weeks allowed todebtors. The lag in payment of wages one week anddebtors. The lag in payment of wages one week and

o&erheads $ weeks. /ut of total $0( is cash sales! banko&erheads $ weeks. /ut of total $0( is cash sales! bank

 balance Rs.*500 and production is 1!*000 units. P stock balance Rs.*500 and production is 1!*000 units. P stock

is complete 30(.is complete 30(.

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%alculate the amt of working capitalre'uirement:%alculate the amt of working capitalre'uirement:

Production during the year 130!000 unitsProduction during the year 130!000 units

The ratio of cost to selling price are material 50(The ratio of cost to selling price are material 50(wages 10( and o&erheads 10(.wages 10( and o&erheads 10(.

Raw materials are e#pected to remain in stock for *Raw materials are e#pected to remain in stock for *

months and in process for 1 month.months and in process for 1 month. )inished goods $ months! creditors allow 1 months)inished goods $ months! creditors allow 1 months

credit and debtors allowed $ months credit.credit and debtors allowed $ months credit.

+elling price per unit is Rs.$0+elling price per unit is Rs.$0 The time lag for wages and o&erheads are 1 month.The time lag for wages and o&erheads are 1 month.

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4 ltd ha&e applied for working capital limit in a bank!4 ltd ha&e applied for working capital limit in a bank!the details are as under:the details are as under:

Raw materials $0(! P *0( ) $5( and debtorsRaw materials $0(! P *0( ) $5( and debtors10(.10(.

,nnual sales at one month credit,nnual sales at one month credit 1"!"0!0001"!"0!000 %ost of production%ost of production 1$!00!0001$!00!000 Raw material purchase 615 days credit7Raw material purchase 615 days credit7 !05!000!05!000 Monthly cash e#pensesMonthly cash e#penses   $5!000  $5!000 /pening stock /pening stock  1!"0!0001!"0!000 %losing stock %losing stock  1!$5!0001!$5!000 n&entory norms RM $ months P 15 days and )n&entory norms RM $ months P 15 days and )

1 month. The firm has recei&ed Rs.15000 ad&ance1 month. The firm has recei&ed Rs.15000 ad&ance

from customers.from customers.