Question

The management of RT Ltd. has called for a statement showing the working
capital need to finance a level of activity of 2,00,000 units of output for the
year. The cost structure for the company’s production for the above level of
activity is (per unit) :
Raw materials Rs. 30
Direct labour Rs. 15
Overhead (including depreciation @ 6 per unit) Rs. 15
Selling price Rs. 80
Other Information :
a) Minimum desired cash balance is Rs. 4,00,000
b) Raw materials are held in stock, on an average for 1 month
c) Work in progress (assume 50% completion stage) will appropriate to 1
months production
d) Finished goods remain in warehouse, on an average for 2 months
e) Supplier of materials extend one month credit and debtors are provided 2
months credit. Cash sales are 20% and credit purchase is 75% of purchase
f) There is a time lag in payment of wages one month and half a month in
case of overheads
Prepare a statement of working capital requirement.

Answer 1

Answer:

The cost structure for the company’s production for the above level of

activity is (per unit) :

Raw materials Rs. 30

Direct labour Rs. 15

Overhead (including depreciation @ 6 per unit) Rs. 15

Selling price Rs. 80

Other Information :

a) Minimum desired cash balance is Rs. 4,00,000

b) Raw materials are held in stock, on an average for 1 month

c) Work in progress (assume 50% completion stage) will appropriate to 1

months production

d) Finished goods remain in warehouse, on an average for 2 months

e) Supplier of materials extend one month credit and debtors are provided 2

months credit. Cash sales are 20% and credit purchase is 75% of purchase

f) There is a time lag in payment of wages one month and half a month in

case of overheads