Prepare an estimation of working capital, Managerial Accounting

Prepare an estimation of working capital needs from the subsequent information of a trading relates with:


Projected Annual Sales



Selling Price

Rs.8 per unit


Profit Margin on Sales



Average Credit Period Allowed to Customers

8 weeks


Average Credit Period Allowed by Suppliers

4 weeks


Average Stock Holding in terms of Sales Requirement

12 weeks


Allow 10% for Contingencies



 Statement demonstrating working Capital Requirements


Current Assets

Stock (12 Weeks)




(Rs.6,00,000 × 12/52)



Debtors (8 weeks)



Rs. 6,00,000 × 8/52)



Current Liabilities



Creditors (4 weeks)



(6,00,000 × 4/52)



Net Working Capital (A-B)



10% for Contingencies



Total Working Capital Required


Working Notes

(i) Cost of Goods Sold

Sales = Rs. 1,00,000 . 8 = Rs. 8,00,000

Profits = Rs. 8,00,000 . 25%  = Rs. 2,00,000

Cost of Sales = Rs. 8,00,000-2,00,000= Rs. 6,00,000

(ii)  As, it is a trading concern; hence cost of sales is treated as purchases.

(iii) Profits have been ignored since profits may or may not be utilized as source of working capital.

Posted Date: 4/9/2013 3:23:12 AM | Location : United States

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