q50506d X Ltd. plans to sell 60000 units next year. The expected cost of goods sold is as follows:

Rs. Per unit

Raw Material 100
Manufacturing expenses (including wages) 30
Selling, Administration Expenses 25
Selling Price 200

The duration of various stages of the operating cycle is expected to be as follows :

Raw Material                                                                            2 Months

Work-in-progress                                                                    1 Months

Finished goods                                                                        1 Months       

Debtors                                                                                   1 Months

Assuming sales are evenly spread over throughout the year, wages and overhead are evenly in- curred. It is also assumed that a minimum Rs. 50000 cash balance is desired. The company enjoys a credit of 1/2 month on its purchases. Workout net working capital requirement for next year.

Question based on AU MBA Assignment Solution and other course

Solution:

21 7 image 568

Working notes :

  1. It is assumed that all sales and purchases are on credit.
  2. Debtors are calculated on the basis of cash cost of sales.
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