Question
The board of directors of Sugandha mills limited request you to prepare a statement showing the working capital requirements for a level of activity of
The board of directors of Sugandha mills limited request you to prepare a statement showing the working capital requirements for a level of activity of 30,000 units of output for the year.
The cost structure for the companys product for the above-mentioned activity level is given below.
| Cost per Unit (Rs.) |
Raw materials | 20 |
Direct labour | 5 |
Overheads | 15 |
Total | 40 |
Profit | 10 |
Selling price | 50 |
(a) Past experience indicates that raw materials are held in stock, on an average for2 months.
(b) Work in progress (100% complete in regard to materials and 50% for labour and over heads) will be half a months production.
(c) Finished goods are in stock on an average for 1 month.
(d) Credit allowed to suppliers: 1 month.
(e) Credit allowed to debtors: 2 months.
(f) A minimum cash balance of Rs 25,000 is expected to be maintained.
Prepare a statement of working capital requirements.
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