Estimation of current assets, Financial Management

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Harry

2/14/2013 1:38:44 AM

Estimation of Current Assets

Current assets estimation includes:

  1. Raw materials Requirement cost

This is computed by multiplying the daily requirement by the age of raw materials. Assume if the raw material cost is $5 per unit and the company expects to produce and sell 36000 units in the coming year and the age of raw materials is 45, raw materials requirement cost would be = Daily requirement x Age of raw materials.

Raw Materials requirement cost =    (36000 x $5 x 45) / 365 = $22,192

  1. Work-in-Progress stock requirement cost

This is computed by multiplying the daily requirement of various sub-components of WIP by the age of WIP (Work in progress). Suppose if the Raw material cost is $5 per unit and where as wages is $4 per unit and production overhead is $4 per unit and the age of WIP is 30 days, the WIP (Work in progress) stock requirement cost would be: (36000 units per year)

Raw material component  = 36,000 x $5 x 30 /365   =   $14,795

Wages (Direct labor) Component =  36,000 x $4 x 30 / 365    =   $11,836

Production overhead component = 36,000 x $4 x 30 / 365    =   $11,836

Total WIP requirement cost = $38,467

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