Question $1-$ Working Capital Management

Cost Sheet of a company provides the following particulars. Raw Materials $40\%$; Labour

$10\%$; Overheads $30\%.$

The following details are also available.

a$)$ Raw Materials remain in stores for $6$ weeks

b$)$ Processing time $-4$ weeks

c$)$ Finished goods are in stock for $5$ weeks

d$)$ Period of credit allowed to debtors $10$ weeks

e$)$ Lag in payment of wages $2$ weeks

f$)$ Period of credit allowed by creditors $4$ weeks

g$)$ Selling price $K50$ per unit

h$)$ Production in unit $13,000$ per annum

Add $10\%$ for contingencies.

Required to:

$($a$)$ Prepare a statement of working capital requirements. $(10$Marks $)$

$($b$)$ What would be your strategies for excess working capital and inadequate working

capital? Give appropriate examples to justify your strategy. $(5$ Marks$)$