1 From the following information prepare a statement showing
the working capital requirements: Budgeted sales(In Unit) 2,60,000 p.a
Analysis of one rupee of sales:
Raw Material 0.30
Direct Labour 0.40
Overheads 0.20
Total cost 0.90
Profit 0.10
Sales 1.00
It is estimated that:
Raw materials are carried in stock for 3 weeks and finished goods for 2
weeks.
Factory processing will take 3 weeks. (Raw material @ 100% & 50% for
labour & overheads
Suppliers will give 5 weeks credit.
Customers will require 8 weeks credit.
Wages & overhead to be accrued evenly throughout the year.
Answer:
Working Capital 44000/-
Explanation:
A. Raw Material = 0.30X260000X(3/52) = 4500/-
B. Work in Progress = (100% of 0.30)X260000X(3/52) = 4500/-
= (50% of (0.40+0.20)X260000X(3/52) = 4500/-
C. Finished Goods = 0.90X260000X(2/52) = 9000/-
D. Debtor = 1X260000X(8/52) = 40000/-
E. Creditor = 0.30X260000X(5/52) = 7500/-
F. Outstanding Wages = 0.40X260000X(1/52) = 2000/-
Therefore, Net Working Capital (A+B+C+D-E-F) = 44000/-
Illustration 2
Find out the working capital requirement from the following information :
Production during the year 60,000 units
Selling Price Rs. 5 per unit.
Raw Material 60%
Wages 10%
Overheads 20%
Raw Material storage period 2 months
Work in process storage period 1 months
Finished goods storage period 3 months
Credit allowed by suppliers 2 months
Credit allowed to customers 3 months
Minimum cash balance desired Rs. 20,000
Wages and overheads payment 1 month
Solution:
Production per month (60,000÷12) 5,000 units
Selling Price Rs. 5.00 per unit
Raw Material (60%) Rs. 3.00 per unit
Wages (10%) Rs. 0.50 per unit
Overheads (20%) Rs. 1.00 per unit
Estimation of working capital requirement
I. Current Assets: Amount Amount
Cash Balance Rs. 20,000
Raw Material (5,000 × Rs. 3 × 2) 30,000
Work in Process:
Raw Material (5000 × Rs 3 × 1) 15,000
Wages (5000 × Rs. 0.50 × 1)50% 1,250
Overheads (5,000 × Rs. 1 × 1)50% 2,500
Finished good (5000 × Rs. 4.50 × 3) 67,500
Debtors (5,000 × Rs. 4.50 × 3) 67,500
Gross Working Capital 2,03,750 Rs. 2,03,750
II. Current Liabilities :
Creditors (5,000 × Rs. 3 × 2) 30,000
Wages (5,000 × Rs. 0.50 × 1) 2,500
Overheads (5,000 × Rs. 1 × 1) 5,000
Total Current Liabilities 37,500 37,500
Net Working Capital (CA–CL) 1,66,250
