Problem: A newly formed company has applied for a short term

loan to a commercial bank for financing its working capital

requirements. You are requested by the bank to prepare an
estimate of the requirements of working capital for that company.
The information about the company is as under:
Estimated cost per unit of production is:
Particulars Taka
Raw materials 80
irect labor !0
"#erheads $e%clusi#e of depreciation& '0
Total cost 170
Additional information:
(elling price Tk.)00 per unit
*e#el of acti#ity +,0-,000 units of
production per annum
Raw materials in stock A#erage - weeks
.ork in progress $assume /00
completion stage in respect of
con#ersion costs&
A#erage ) weeks
1inished goods in stock A#erage - weeks
2redit allowed by suppliers A#erage - weeks
2redit allowed by debtors A#erage 8 weeks
*ag in payment of wages A#erage +./0 weeks
2ash at bank e%pected to be Tk.)/,000
You may assume that production is carried on e#enly throughout
the year $/) weeks& and wages and o#erheads accrue similarly.
All sales are on credit basis only.
Required: 3stimate the net working capital required for the
company.
Solution:
3stimation of working capital requirements:
$A& 4n#estment in 4n#entory
$i& 4n#estment in Raw
materials 5 R6
consumption 7 R6
consumption
period89o. of weeks
$ii& 4n#estment in
.4:52ost of goods
sold7.4:
consumption
period 89o. of weeks
$iii& 4n#estment in
finished goods5cost
of production7 1;
consumption
period89o. of weeks
$807+,0-,0007-&
/)
$+<07+,0-,00070./7
)&
/)
$+<07+,0-,0007-&
/)
'-,000
!,-0,000
+!'0,000
Total Inventor Investment !i"ii"iii# $%&'0&000
$=& 4n#estment in
debtors5 $2redit sale
at cost78&89o. of
weeks
$+<07+,0-,00078&
/)
$7&$0&000
$2& 2ash =alance required $(&000
$& Total in#estment in current assets $A>=>2&
(0&)(&000
$3& 2urrent *iabilities
$i& 2reditors5 $:urchase
of R672:&89o. of
week
$ii& effered wages5
*abor cost72:&8 9o. of
week
$807+,0-,0007-&
/)
$!07+,0-,0007+./&
/)
',-0,00
0
?0,000
$3& Total 2urrent *iabilities
7&%0&000
$1& 9et working capital requirements $@3& '%&((&000
Problem: A proforma cost sheet of a company pro#ides the
following data:
Estimated cost per unit of production is:
*osts per unit Taka
Raw materials /).00
irect labor +?./0
"#erheads !?.00
Total cost per unit ++0./0
Profits +?./0
Sellin+ price +!0.00
T,e follo-in+ is t,e additional information available:
A#erage raw materials and finished
goods in stock
"ne month
A#erage materials in process Aalf a month
2redit allowed by supplier "ne month
2redit allowed by debtor Two month
Time lag in payment of wages "ne and half month
"#erheads "ne month
2ash balance 4 e%pected Tk.+,)0,000
"ne forth of the sales are on cash basis
You are required to prepare a statement showing the working
capital needed to finance a le#el of acti#ity of <0,000 units of
output. You may assume that production is carried on e#enly
throughout the year $/) weeks& and wages and o#erheads accrue
similarly.
Solution:
3stimation of working capital requirements:
$A& 4n#estment in 4n#entory
$i& 4n#estment in Raw
materials 5 R6
consumption 7 R6
consumption
period89o. of weeks
$ii& 4n#estment in
.4:52ost of goods
sold7.4:
consumption
period 89o. of weeks
$iii& 4n#estment in
finished goods5cost
of production7 1;
consumption
period89o. of weeks
$/)7<0,0007-&
/)
$++0./7<0,0007)&
/)
$++0./7<0,0007-&
/)
),80,000
),?<,/00
/,?/,000
Total Inventor Investment !i"ii"iii# 11&7$&(00
$=& 4n#estment in
debtors5 $2redit sale
at cost78&89o. of
weeks
$+!07<0,00070.</
78&
/)
10&(0&000
$2& 2ash =alance required 1&$0&000
$& Total in#estment in current assets
$A>=>2&
$%&'$&(00
$3& 2urrent *iabilities
$i& 2reditors5
$:urchase of
R672:&89o. of
week
$ii& effered wages5
*abor cost72:&8 9o.
of week
$iii& eferred
o#erheads
$/)7<0,0007-&
/)
$+?./7<0,0007+./&
/)
$!?7<0,0007-&
/)
),80,000
!?,!</
),+0,000
$3& Total 2urrent *iabilities $i>ii>iii& (&$.&%7(
$1& 9et working capital requirements $@3& 1)&1%&1$(