Estimation of Working Capital

Dear Sir/maa'm

 

Please solve the following Query at the earliest:

 

MA Limited is commencing a new project for manufacture of a plastic component. the following cost information has been ascertained for annual production of 12,000 units which is the Full Capacity:

 

                                                                 Cost Per Unit(Rs.)

Materials                                                         40

Direct Labor and

Variable Expenses                                       20

Fixed Manufacturing Expenses                6

Depreciation                                                  10

Fixed Admin. Expenses                               4

 

The Selling Price per unit is expected to be Rs. 96 and the selling expenses Rs. 5 per unit, 80% of which is variable.

 

In the first two years of operations, production and sales are expected to be as follows:

Year       Production(units)         Sales(units)

  1               6,000                                   5,000

  2               9,000                                   8,500

 

To assess the working capital requirements, the following additional information is available:

 

Stock of Materials        :      2.25 month's average consumption

Work in process      :      NIL

Debtors                    :      1 month's average sales

Creditors for supply

of materials            :      1 month's average purchase during the year

 

Prepare for Two years:

1. A projected Statement of profit & Loss (ignoring taxation) &

2. A projected Statement of Working capital.

3. The company has also approached to their bankers for their working capital requirement, who has agreed to sanction the same by retaining the margins as under:

Raw Materials   : 20%

Work in process: 30%

Finished Goods: 25%

Debtors         : 10%

 

Find Out the working capital limits approved by bankers.