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

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

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       

Relationship of Items :

Working Capital vo paisa hai j ohm bank se credit pe lete hain

Ek product ki cost Rs. 8 per unit hai

Aur sale price Rs. 10 per unit hai

Ab bank hme Rs. 8 per unit k base pe credit dega

Ab agr is per unit cost me depreciation Rs. 2 per unit hai to bank hme Rs. 6 per unit k base pe credit dega

Conclusion ye niklta hai k bank hme na to profit pe credit deta hai aur an hi depreciation pe

Working Capital Estimation 2 basis pe hoti hai

-        Total Cost Basis

-        Cash Cost Basis

Total cost basis me hm profit aur depreciation dono ko consider krte hain

Cash cost basis me Profit aur dep. Consider nai hoti

Jb cash cost basis pe WC extimate krte hain, tb 3 items me change aata hai

-        WIP

-        FG

-        Debtors

Some IMP Tips

1. if the ques requires balance sheet........calculate WC on total cost basis, unless mentioned otherwise

2. if administration OH  & Selling Distribution OH not given in ques........Works cost = Cost of Production = Cost of Sales

3. If given........Works Cost ≠ Cost of Production ≠ Cost of Sales

4. Wors Cost includes ...........Material + Wages + OH

5. Cost of Production includes...........Works Cost + Administration OH

6. Cost of Sales includes...........Cost of Production + Sell. & Dist. OH

7. Administration OH given in ques are Production related, unless mentioned otherwise and are to be consider in FG valuation