G. K.'s way to Learn - Working Capital Management

Gourav Kapoor (CA Final Student) (2977 Points)

02 March 2011

Referring to MY POST, I am hereby starting this thread for PCC/IPCC – Financial Management – Working Capital Management

So friends, Lets Start……

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3 Replies

Gourav Kapoor (CA Final Student) (2977 Points)
Replied 02 March 2011

Lets start a ques to understand the concept of working capital

Ques :

Particulars Rs. Per Unit

Material 5

Labour 3

OH 2

Selling Price 15

Closing Stock

- WIP 5000 units {material 100% and labour 50%}

- FG 4000 units

Opening stock Nil

Sale 10000 units

Sol:

1^st of all draft cost sheet it will make the ques easy

Lets take three different situations to make Cost sheet

Cost Sheet	Consider Complete & Incomplete units Both	Consider only complete units	Consider only sold units
Cost Sheet	I	II	III
Material	95000	70000	50000
Material	Complete => 14000 X 5 Incomplete => 5000 X 5	Complete => 14000 X 5	Sold => 10000 X 5
Labour	49500	42000	30000
	Complete => 14000 X 3 Incomplete => 5000 X 1.5	Complete => 14000 X 3	Sold => 10000 X 3
PRIME COST	144500	112000	80000
Factory OH	33000	28000	20000
	Complete => 14000 X 2 Incomplete => 5000 X 1	Complete => 14000 X 2	Sold => 10000 X 2
Gross Works Cost	177500	140000	100000
(-) Closing WIP	37500	-	-
Net Works Cost	140000	140000	100000
(-) Admin. Expenses	-	-	-
Cost of Production	140000	140000	100000
(-) Cl. FG	40000	40000	-
Cost of Goods Sold	100000	100000	100000
Sell. Dist. Expenses	-	-	-
Cost of Sales	100000	100000	100000
Profit	50000	50000	50000
Sales (10000 X 15)	150000	150000	150000
RESULT		Gross Works Cost = Cost of Production	Gross Works Cost = Cost of Sales

Points to keep in mind

1. Co. ne decide kia that we will keep material in godown equal to 3 months consumption

The ques arises here that wch consumption will we consider now ?

As per Cost Sheet I or II or III ?

The answer is I cz hmne vahan complete aur incomplete ubits ko consider kia hai

2. kya esa b ho skta hai k all 3 cost sheets me material cost same ho ?

Yes esa possible hai

When ?

Jb opening & closing stock same hoga

How ?

Lets continue above example, the following info is also given

Stock Opening Closing

WIP 3000 3000

FG 5000 5000

Now calculate production

Production = Sales + Closing Stock – Opening Stock

= 10000+5000-5000 => 10000 units

NOTES :

- Agr opening & closing stock same hai, Material cost is SAME

- Agr opening & Closing Stock differ hai, Material Cost is DIFFER

Particulars	Cost Sheet No.
If Opening Stock = Closing Stock (Level of activity)	III
	WIP Exists	WIP not Exists
If Opening Stock ≠ Closing Stock	I	II
Newly commenced business	I	II

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