Raw material requirement calculation on working capital loan for bank project report

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1731 Arman Ali (Querist)
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15 July 2021 I am not able to find Estimated assumed raw material required on working capital for bank project report on operating cycle basis of a newly establishing garments manufacturing firm....Could anyone please help me with this??

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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10 July 2024 Calculating the estimated assumed raw material required on a working capital basis for a garments manufacturing firm involves estimating the raw material needed for production based on the operating cycle. Here’s a step-by-step approach to help you determine this for your bank project report:

### Steps to Estimate Raw Material Requirement:

1. **Understand the Operating Cycle:**
- The operating cycle for a garments manufacturing firm typically includes:
- Procurement of raw materials (fabric, thread, accessories, etc.),
- Manufacturing process (cutting, stitching, finishing),
- Inventory holding period,
- Sales period,
- Receipt of payments from customers.

2. **Estimate Production Requirement:**
- Estimate the monthly or quarterly production volume of garments based on initial market demand projections and capacity utilization plans.

3. **Raw Material Requirement Calculation:**
- Calculate the raw material requirement per unit of production. This includes:
- Fabric consumption per garment (in meters or kilograms),
- Thread and accessories requirement per garment.

4. **Projected Raw Material Consumption:**
- Multiply the estimated production volume by the raw material requirement per unit to get the total raw material consumption for the period (month or quarter).

5. **Safety Stock and Lead Time Consideration:**
- Factor in safety stock levels to cover unexpected demand fluctuations or supply disruptions.
- Consider lead times for raw material procurement to avoid production delays.

6. **Seasonal Variations and Trends:**
- Adjust the raw material requirement estimation for seasonal variations in demand or supply.

### Example Calculation:

Let's assume:
- Monthly production target: 10,000 garments
- Raw material consumption per garment:
- Fabric: 2 meters per garment
- Thread: 50 grams per garment

\[
\text{Monthly fabric requirement} = 10,000 \, \text{garments} \times 2 \, \text{meters/garment} = 20,000 \, \text{meters}
\]

\[
\text{Monthly thread requirement} = 10,000 \, \text{garments} \times 50 \, \text{grams/garment} = 500,000 \, \text{grams} = 500 \, \text{kg}
\]

### Reporting in Bank Project Report:

- **Operating Cycle Basis:** Clearly explain the estimated raw material requirements based on the operating cycle (from procurement to receipt of payment) in your project report.
- **Justification:** Provide a rationale for the estimated figures, including assumptions made regarding production volumes, capacity utilization, and market demand.

By following these steps and calculations, you can estimate the assumed raw material required on a working capital basis for your garments manufacturing firm effectively. This information will be crucial for presenting a comprehensive and well-supported project report to your bank or financial institution.

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