Question 5
Working capital requirements (weeks basis)
15 marks
- Time to write
- About 30 minutes
From an older CBCS paper
Question
Question 5 · 15 marksFrom the details below, compute the working requirements:
| Sales (budgeted) | 48,000 units per annum |
| Per unit Raw Material Cost | ₹ 9 |
| Per unit Direct Labour | ₹ 7 |
| Per unit Overhead | ₹ 3 |
| Per unit Total Cost | ₹ 19 |
| Per unit Profit | ₹ 1 |
| Per unit Selling price | ₹ 20 |
Further informations:
Debtors are allowed credit for 7 weeks.
Suppliers give credit for 4 weeks.
Raw material will be held in stock for 4 weeks, and finished goods held for 2 weeks.
On an average, factory processing will take 4 weeks.
Assume that labour and overhead expenses accrue evenly over the production cycle. 15
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
- (i)–(iv)4 items, each marked on its own: give each its share.
- Assume that labour and overhead expenses…The paper fixes this: use it as given, and say so in your answer.
- computeFormula first, then the working, then the answer with its unit (₹, %, units).
What the paper leaves open
"Working requirements" is read as working capital requirements. Labour and overheads in work in progress are taken at half; no payment lags are given for wages and overheads, so none are assumed. Debtors are valued at cost.
Write it in this order
- Read the data; note exactly what is asked 2 min
- 1 Basis and weekly figures 2 marks 3 min
- 2 Raw material and work in progress 4 marks 7 min
- 3 Finished goods and debtors 4 marks 7 min
- 4 Creditors and net working capital 5 marks 9 min
- Check: arithmetic, units (₹, %), final answer underlined 2 min
Try it first. About 30 minutes for 15 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 (paper note): 52 weeks a year, so weekly output = 48,000 ÷ 52 = 923.08 units. Working capital is estimated at cost; debtors are valued at cost (₹19 a unit). Work in progress carries raw material in full and labour and overheads at half, since they accrue evenly over the 4-week process (the DU text values work in progress with materials in full and labour at 50% completion). No payment lags are given for wages and overheads, so none are assumed. Each component is the period it is held for × the matching weekly cost.
| Element | Working | ₹ |
|---|---|---|
| Raw material (full) | 923.08 × 4 × 9 | 33,230.77 |
| Direct labour (50%) | 923.08 × 4 × 7 × 0.5 | 12,923.08 |
| Overheads (50%) | 923.08 × 4 × 3 × 0.5 | 5,538.46 |
| Total | 51,692.31 |
Statement of working capital requirements
| Particulars | Working | ₹ |
|---|---|---|
| Raw material stock (4 weeks) | 923.08 × 4 × 9 | 33,230.77 |
| Work in progress (4 weeks) | as above | 51,692.31 |
| Finished goods (2 weeks) | 923.08 × 2 × 19 | 35,076.92 |
| Debtors at cost (7 weeks) | 923.08 × 7 × 19 | 1,22,769.23 |
| Total current assets | 2,42,769.23 | |
| Less: creditors (4 weeks of raw material) | 923.08 × 4 × 9 | 33,230.77 |
| Net working capital required | 2,09,538.46 |
A margin for contingencies may be added if the firm wishes; none is asked for.
Where the 15 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Basis and weekly figures | 2 |
| 2 | Raw material and work in progress | 4 |
| 3 | Finished goods and debtors | 4 |
| 4 | Creditors and net working capital | 5 |
| Total | 15 |
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