Computation of working capital required, Managerial Accounting

Computation of Working Capital Required

1.

Operating Cycle Period

=

M+W+F+D-C

 

 

=

101.38 +28.07+26.07+14.60-60

 

 

=

110.12 or 110 days

 

2.       Total Cost of Sales                                              Rs

Cost of Goods Sold

5,60,000

Distribution and other Expenses

40,000

 

6,00,000

3.         Cash Working Capital          = C + (OC/N) . CS

= O + (110/365). Rs.6,00,000

= Rs.1,80,822

Illustration 5: Manekchand Ltd. Plans to sell 30,000 units subsequent year. The probable cost of goods sold is as given here:

                                                                                      Rs. (Per units)

Raw Material

100

Manufacturing Expenses

30

Selling Administration And Finance Expanses

20

Selling Price

200

The duration of different stages of the operating cycle is expected to be as given below:

Raw Material Stage                                                                    2 month

Work in Progress                                                                        1 month

Fished Goods Stage                                                                    ½ month

Debtors Stage                                                                             1 months

Suppose that the monthly sales level of 2,500 units; evaluates the gross working capital requirements if the needed cash balance is 5 percent of the gross working capital requirement.

Solution:

Statement of Gross Working Capital Requirements

Current Assets:                                                                                      Rs.                       Rs.

(i)  Raw Material (2 months) (Rs. 2,500 ? 100 ? 2)                                                          5,00,000

(ii)  Work in progress (1 month)

Raw material (Rs. 2,500 × 100 × 1)                                                      2,50,000

Mfg. Expenses (Rs. 2,500 × 30 × 1)                                                      75,500                   3,25,000

(iii) Finished goods (1/2 months)

Raw Material (Rs. 2,500 × 100 × 5)                                                      1,25,000

Mfg. Expenses (Rs. 2,500 × 30 × .5)                                                     37,500                  1,62,500

(iv) Debtors (1 month) (Rs. 2,500 × 150 × 1)                                                                     3,50,000

(v)     Cash                                                                                     13,62,500                71,711

(5percent of gross working capital that is, 13,62,500 ? 5/95)                 14,34,211                    

Gross Working Capital Required 

Working Notes:

1. Finance expenses and selling administration are not contained in the value of closing stock of finished goods although added in the cost of sales for valuing debtors.

2. It is assumed as degree of completion of work-in-progress is 100 percent as regards labour, overhead and materials and as manufacturing and material expenses for the full period are involved in the cost of work-in-progress.

3. It is assumed that each sale is credit sales.

4. Profit has not been termed as source of working capital thus fully ignored.

Posted Date: 4/9/2013 3:29:34 AM | Location : United States







Related Discussions:- Computation of working capital required, Assignment Help, Ask Question on Computation of working capital required, Get Answer, Expert's Help, Computation of working capital required Discussions

Write discussion on Computation of working capital required
Your posts are moderated
Related Questions
what is Computerized Processing Systems

Ask question #Miwhy is the activity based costing unaccepable for external financial reportnimum 100 words accepted#

Manufacturing cost data for Sassafras Company, which uses a job order cost system, are presented below. Indicate the missing amount for each letter. Assume that in all cases manufa

Rate of return or target pricing method Under this method of price determination first of all a rate of return desired by the enterprises on the amount of profit capital inves

In this section we have discussed the motives for conducting cash balances. In addition, we have discussed cash deficit or surplus situation and how it can be contained by the use

In this scheme, non-revolving line of credit is extended to the seller to be utilized inside a stipulated period. Assistance is provided to manufactures for promoting sale of their

Explain Programmer budgeting According to burkhead According to burkhead a program budget serves a different purpose than performance budget. A performance budget is useful fo

Do you think the food industry in general has equivocated on food labeling? Are all foods labeled natural in the same way? Has modern society subverted the concept of nature?

What is Standard costing Standard cost is a predetermined cost. It is a determination in advance of production of what should be the cost. When standard costs are used for the

1.The acquisition of Company B was financed by Company A with cash and by issuance of 2M common shares for $100M. Company A forgot to record the stock issuance