Question 3 (b)
Statement of working capital requirement
10 marks
- Time to write
- About 20 minutes
From an older CBCS paper
Question
Question 3 (b) · 10 marksA company's cost sheet gives you the estimated cost per unit below:
| Element of cost | Amount per unit (Rs.) |
|---|---|
| Raw material | 10 |
| Labour (direct) | 4 |
| Overheads | 6 |
| Cost in total | 20 |
Further details:
| Selling price | Rs. 25 per unit |
| Activity level | 1,87,200 units per annum |
| Raw material held in stock | Average 4 weeks |
| Work in progress held | Average 2 weeks |
| Finished goods held in stock | Average 4 weeks |
| Credit period allowed by suppliers | Average 4 weeks |
| Credit period allowed to debtors | Average 8 weeks |
| Time lag in payment of wages | Average 2 weeks |
| Expected cash at bank | Rs.60,000 |
Production is carried out evenly over the year (52 weeks), and wages and overheads accrue in the same way. 25% of sales are on a cash basis. You are required to prepare a statement of the working capital requirement. (5,10)
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- prepare a statementDraw the format first (heading, columns, dates), then fill in the figures from your working.
What the paper leaves open
No payment lag is given for overheads; they are taken as paid when incurred, and no credit for them is assumed. Debtors are valued at cost on the 75% credit share; work in progress at full raw material and half of labour and overheads.
Write it in this order
- Read the data; tick every adjustment as you plan it 1 min
- 1 Weekly output, cost basis and readings 1 mark 2 min
- 2 Raw material and work in progress 3 marks 5 min
- 3 Finished goods, debtors and cash 3 marks 5 min
- 4 Creditors and wages 2 marks 4 min
- 5 Net working capital 1 mark 2 min
- Check: every adjustment used, both sides agree, dates in 1 min
Try it first. About 20 minutes for 10 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Basis. Output = 1,87,200 ÷ 52 = 3,600 units a week; cost per unit ₹20 (raw material 10, labour 4, overheads 6). Stocks and debtors are taken at cost, not selling price: only cash cost is counted for finished goods and debtors, profit being left out. Readings (paper note): work in progress carries raw material in full and half of labour and overheads, as in the DU text's worked statement; debtors are on the 75% of sales made on credit; overheads are paid as incurred (no lag is given).
Statement of working capital requirement (₹)
| Particulars | Working | ₹ |
|---|---|---|
| Current assets | ||
| Raw material (4 weeks) | 3,600 × 4 × 10 | 1,44,000 |
| Work in progress (2 weeks): raw material | 3,600 × 2 × 10 | 72,000 |
| Work in progress: labour (50%) | 3,600 × 2 × 4 × 50% | 14,400 |
| Work in progress: overheads (50%) | 3,600 × 2 × 6 × 50% | 21,600 |
| Work in progress, total | 1,08,000 | |
| Finished goods (4 weeks, at cost) | 3,600 × 4 × 20 | 2,88,000 |
| Debtors (8 weeks, 75% credit, at cost) | 3,600 × 8 × 20 × 75% | 4,32,000 |
| Cash at bank | 60,000 | |
| Total current assets | 10,32,000 | |
| Current liabilities | ||
| Creditors (4 weeks' raw material) | 3,600 × 4 × 10 | 1,44,000 |
| Outstanding wages (2 weeks) | 3,600 × 2 × 4 | 28,800 |
| Total current liabilities | 1,72,800 | |
| Net working capital required (current assets − current liabilities) | 8,59,200 |
Where the 10 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Weekly output, cost basis and readings | 1 |
| 2 | Raw material and work in progress | 3 |
| 3 | Finished goods, debtors and cash | 3 |
| 4 | Creditors and wages | 2 |
| 5 | Net working capital | 1 |
| Total | 10 |
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