Managerial Finance/ Working capital Management

Problem :1 As a management accountant of a company, you are required to prepare a statement showing working capital requirement for 24000 units of production in next year. The following information are given in this purpose:

1. Cost:
Direct row material cost per unit --------------------------Tk. 20
Direct labor cost per unit ---------------------------------Tk. 8
Overhead (100% of selling price)
Profit 20% of selling price.



2. Conversion period:
a) Raw materials are expected to be in the stock for an average of 30 days before issue to production.
b) Processing time is 15 days and finished goods are expected to remain in the store on an average for 45 days.
c) Credit allowed to debtors 2 months, whereas the creditors allowed only 1 month.
d) Time lag in payment of wages is 15 days.

Solution: 

2. The cost accountant provided with the following information about production, cost, and other related issues of a company. As the financial manager of the company you are required to calculate the working capital requirement:
Annual Production------------52000 Unit
Raw material cost per unit----80 Tk
Direct labor cost per unit-----20 Tk
Overhead cost per unit-------60 Tk
Total Cost per unit -------  160 Tk
Profit per unit----------------40 Tk
Selling price per unit---------200 Tk

Other information :
a) Direct raw materials are in stock on an average for one month and in the process on average half month.
b) Finished goods are in stock on average for six weeks.
c) Credit allowed by creditors is one month and to debtors is two months.
d) Lag in payment of wages 2 weeks.
e) Cash in hand and at bank is expected to be Tk. 720000

Solution :