Prepare an estimation of working capital, Managerial Accounting

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

(a)

Projected Annual Sales

1,00,000

(b)

Selling Price

Rs.8 per unit

(c)

Profit Margin on Sales

25%

(d)

Average Credit Period Allowed to Customers

8 weeks

(e)

Average Credit Period Allowed by Suppliers

4 weeks

(f)

Average Stock Holding in terms of Sales Requirement

12 weeks

(g)

Allow 10% for Contingencies

 

Solution:

 Statement demonstrating working Capital Requirements

(a)

Current Assets

Stock (12 Weeks)

Rs.

1,38,462

 

(Rs.6,00,000 × 12/52)

92,308

 

Debtors (8 weeks)

2,30,770

 

Rs. 6,00,000 × 8/52)

 

Less:

Current Liabilities

46,154

 

Creditors (4 weeks)

 

 

(6,00,000 × 4/52)

 

 

Net Working Capital (A-B)

1,84,616

Add:

10% for Contingencies

18,462

 

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







Related Discussions:- Prepare an estimation of working capital, Assignment Help, Ask Question on Prepare an estimation of working capital, Get Answer, Expert's Help, Prepare an estimation of working capital Discussions

Write discussion on Prepare an estimation of working capital
Your posts are moderated
Related Questions
advantage and disadvantage of incremental budget

Number of Operating Cycles: The number of operating cycles in a period is determined by dividing the number of days in a year i.e.365 by the length of net operating cycle. Express

Cash management is related along with the management of: Cash outflows and inflows of the firm Cash flows inside the firm Cash balances as financing deficit and inve


The current sales of M/s ABC are Rs.100 lakhs. Through relaxing the credit standards the firm can produce additional sales of Rs.15 lakhs on that bad debt losses would be 10 percen

During the year the company worked a total of 145,900 machine-hours on all jobs and incurred actual manufacturing overhead costs of $1,305,346. What is the amount of underapplied o

areas where zero based budgeting can be effectively used?

Alma and Associates, a new consulting service, recently received a bill for repairs on its computers totaling $2,350. Alma thinks it may have been overcharged and is trying to recr


Explain about Cost centre: Meaning & definition: cost centre is defined as a location, person or item of equipment (or group of them) in respect which costs may be ascertaine