LS2505: Prepare an estimate of net working capital required for ABC Ltd. adding 10% for contingencies from the information given below: Estimated cost per unit of production Rs. 170 includes raw materials Rs. 80, direct labour Rs. 30 and overheads (exclusive of depreciation) Rs.60. Selling price is Rs. 200 per unit. Level of activity per annum 1,04,000 units.

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Question: Prepare an estimate of net working capital required for ABC Ltd. adding 10% for contingencies from the information given below: Estimated cost per unit of production Rs. 170 includes raw materials Rs. 80, direct labour Rs. 30 and overheads (exclusive of depreciation) Rs.60. Selling price is Rs. 200 per unit. Level of activity per annum 1,04,000 units.

Raw material in stock: average 4 weeks, work in progress (assume 50% completion stage):

Average 2 weeks

Finished goods in stock: average 4 weeks

Credit allowed to suppliers: average 4 weeks

Credit allowed to debtors: average 8 weeks

Lag in payment of wages: average 1.5 weeks

And Cash at Bank is expected to be Rs.25,000

You may assume that production is carried on evenly throughout the year (52 weeks) and wages and overheads accrue similarly. All sales are on credit basis only. You may state your assumptions, if any.

 


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