Question 5
Working capital forecast
15 marks
- Time to write
- About 30 minutes
From an older CBCS paper
Question
Question 5 · 15 marksFrom the information below, prepare a working capital forecast:
| Production for the year | 82,800 units |
| Finished goods held in store | 3 months |
| Raw materials held in store | 2 months |
| Production process time | 1 month |
| Credit period allowed by suppliers | 2 months |
| Credit period allowed to debtors | 3 months |
| Per unit selling price | ₹50 |
| Cost of raw material | 50% of selling price |
| Wages (direct) | 10% of selling price |
| Overheads (manufacturing) | 16% of selling price |
| Overheads (selling) | 4% of selling price |
The production and sales cycle is regular, and wages and overheads accrue uniformly. Wages are paid a month in arrear. Assume that the full material is issued to production at the start of the production process.
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
- Assume that the full material is…The paper fixes this: use it as given, and say so in your answer.
What the paper leaves open
Selling overheads are left out of stock values and included in the cost of debtors; no payment lag is given for overheads, so none is assumed. Debtors and finished goods are valued at cost.
Write it in this order
- Read the data; note exactly what is asked 2 min
- 1 Cost per unit and basis 2 marks 3 min
- 2 Raw materials and work in progress 4 marks 7 min
- 3 Finished goods and debtors 4 marks 7 min
- 4 Current liabilities and 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). Monthly production and sales = 82,800 ÷ 12 = 6,900 units. Cost per unit: raw material 50% of ₹50 = ₹25; wages ₹5; manufacturing overheads ₹8; selling overheads ₹2. Cost of production = ₹38 (stock values exclude selling overheads); total cost = ₹40 (debtors include them). Finished goods and debtors are valued at cost. Raw material is issued in full at the start of the process; wages and manufacturing overheads are half complete in work in progress. Wages are paid a month in arrear; no lag is given for overheads, so none is assumed. Each item is the holding period × the monthly cost.
| Element | Working | ₹ |
|---|---|---|
| Raw material (full) | 6,900 × 25 | 1,72,500 |
| Wages and manufacturing overheads (50%) | 6,900 × 13 × 50% | 44,850 |
| Total | 2,17,350 |
| Particulars | Working | ₹ |
|---|---|---|
| Current assets | ||
| Raw materials in store (2 months) | 6,900 × 2 × 25 | 3,45,000 |
| Work in progress (1 month) | as above | 2,17,350 |
| Finished goods (3 months, at cost of production) | 6,900 × 3 × 38 | 7,86,600 |
| Debtors (3 months, at total cost) | 6,900 × 3 × 40 | 8,28,000 |
| Total current assets | 21,76,950 | |
| Current liabilities | ||
| Creditors (2 months of raw material) | 6,900 × 2 × 25 | 3,45,000 |
| Wages outstanding (1 month) | 6,900 × 5 | 34,500 |
| Total current liabilities | 3,79,500 | |
| Working capital required | 17,97,450 |
Where the 15 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Cost per unit and basis | 2 |
| 2 | Raw materials and work in progress | 4 |
| 3 | Finished goods and debtors | 4 |
| 4 | Current liabilities and working capital | 5 |
| Total | 15 |
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