Question

Estimated Cost per unit: Raw Material - Rs. 90, Labour - Rs. 25, Overheads - Rs. 40 Total Cash Cost - Rs. 155 Selling Price unit - Rs. 200, Acivity Level - 5,000 units per annum Raw Material Stock (Avg.) 5 weeks, Work in Progress (Avg.) 3 weeks [assume 50\% completion stage in respect of conversion cost and 100% in materials]. Finished Goods in Stock (Avg.) - 4 weeks, Credit Period allowed to Debtors (Avg.) - 5 weeks, Credit Period allowed by Suppliers (Avg.) - 4weeks, Lag in wages payment (Avg.) - 2 weeks, Cash level - RS. 75,000 Add 5% for contingencies in the working capital. Assume steady production throughout the year and all sales are credit only. You are required to compute the working capital for the firm.

Answer 1

The working capital for the firm can be computed by adding the cash level, raw material stock, work in progress, finished goods in stock, and subtracting the credit periods. A contingency of 5% should be added. The working capital required for the firm is Rs. 2,982 plus a 5% contingency.

Step-by-step explanation:

The working capital for the firm can be computed by adding the cash level, raw material stock, work in progress, and finished goods in stock, and subtracting the credit period allowed to debtors and the credit period allowed by suppliers. Additionally, a contingency of 5% should be added to the working capital. Here is the calculation:

Working Capital = Cash Level + Raw Material Stock + Work in Progress + Finished Goods in Stock - Credit Period allowed to Debtors - Credit Period allowed by Suppliers + Contingency

Working Capital = Rs. 75,000 + (90/52 imes Estimated Annual Raw Material Cost) + (155/5,000 imes Estimated Annual Conversion Cost) + (200/52 imes Estimated Annual Selling Expense) - (200/52 imes Estimated Annual Receivable) - (155/52 imes Estimated Annual Payable) + 5% of the sum

Substituting the given values into the formula, the working capital for the firm is calculated as follows:

Working Capital = Rs. 75,000 + (90/52 imes Rs. 90 imes 5,000) + (155/5,000 imes Rs. 25 imes 50,000) + (200/52 imes Rs. 200 imes 5,000) - (200/52 imes Rs. 200 imes 5,000) - (155/52 imes Rs. 155 imes 5,000) + 5% of the sum

Working Capital = Rs. 75,000 + Rs. 82,692 + Rs. 75,100 + Rs. 192,308 - Rs. 192,308 - Rs. 230,769 + 5% of the sum

Working Capital = Rs. 2,982 + 5% of the sum

Therefore, the working capital required for the firm is Rs. 2,982 plus an additional 5% contingency.