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:  Determination of working capital requirement

Particular	Taka	Taka
Investment in inventory: 1)Row materials        =(24000*30*20)/360 2)Work in process     =(24000*36*15)/360 3)Finish goods          =(24000*45*36)/360                 Total investment in inventory(1+2+3) Investment in debtors =(24000*36*60)/360 Expected cash balance Total current assets                (A+B+C) Total current Liabilities:    1) Creditors          =(24000*20*30)/360    2) wages               =(24000*8*15)/360                              Total Current Liabilities (1+2)                                   Net Working Capital (D-E)	40000 36000 108000	184000 144000
	40000 8000
		324000 48000
		280000