Credit Operations and Management (COM)

Working Capital Management (WCM)

96th BPE
XYZ Company provides the following particulars:
Particulars Amount per unit (Tk)
Raw materials 80
Direct labour 30
Overhead 60
Total Cost 170
Profit 30
Selling price 200
The following further particulars available:
Raw materials in stock, on average, one month; materials in process (completion stage, 50%), on
average, half a month, finished goods in stock, on average, one month. Credit allowed to debtors in two
months; average time-lag in payment of wages is 1.5 weeks and one month in overhead expenses;
one-fourth of the output is sold against cash; Cash in hand and at Bank is desired to be maintained at
Taka 3,65,000. You are required to prepare a statement showing the working capital needed to finance
a level of activity of 1,04,000 units of production. Assume that production is carried on evenly
throughout the year, and wages and overheads are accrued similarly. Also assume 4 weeks equivalent
to a month, 52 weeks a year.
Solution:
Annual production 1,04,000 units
Production per week (1,04,000÷52) 2,000 units
Requirement per week:
Particulars Amount per unit (Tk) Amount per week (Tk)
Raw materials 80 × 2,000 160,000
Direct labour 30 × 2,000 60,000
Overhead 60 × 2,000 120,000
Total Cost 170 × 2,000 340,000
Statement showing Working Capital Requirement
Particulars Amount per week Tide up Period Amount Amount
(Tk) (Week)
A. Current Asset
1. Raw materials 160,000 4 640,000
2. Work in Process
(i) Raw materials 160,000 × 50% 2 160,000
(ii) Direct Labour 60,000 × 50% 2 60,000
(iii) Factory Overhead 120,000 × 50% 2 120,000
Total 340,000
3. Finished goods 340,000 4 1,360,000
Accounts Receivable 340,000 × 8 2,040,000
Total Current Assets 4,380,000

Md. Mizanur Rahman, ACMA, CDCS, DAIBB, DIB; Contact: 01870478713 1

 Credit Operations and Management (COM)
Working Capital Management (WCM)
B. Total Current Liabilities
1. Accounts payable 160,000 4 640,000
2. Direct Labor 60,000 1.50 90,000
3. Factory Overhead 120,000 4 480,000
Total Current Liabilities 1,210,000
C. Net Current Assets (A-B) 3,170,000
D. Desired Cash 3,65,000
E. Working Capital Requirement 3,535,000

92nd DAIBB
From the following information prepare a statement showing the estimated working capital
requirements:

Budgeted sales Tk.2,60,000 per annum. Analysis of cost of each unit:

Taka
Raw materials 3.00
Labors 4.00
Overheads 2.00
Profits 1.00
10.00
It is estimated that:
(i) Pending used raw materials are carried in stock for three weeks and finished goods for two weeks.
(ii) Factory processing will take three weeks.
(iii) Suppliers will give five weeks credit. It may be assumed that production and overheads occurred
evenly throughout the year.
(iv) Debtors are allowed 8 weeks credit period.

Solution:
Yearly budgeted sales = Tk.2,60,000
Yearly budgeted units = Tk.2,60,000 ÷ Tk.10 = 26,000 units
Assuming that 1 year = 52 weeks
Weekly production = 26,000 units ÷ 52 = 500 units
Raw materials 3 × 500 1,500
Labors 4 × 500 2,000
Overheads 2 × 500 1,000
Total Cost 4,500
Profits 1 × 500 500
5,000
Statement showing the estimated working capital requirements

A. Current Assets
Raw materials 3 Weeks 4,500
Work in Process

Md. Mizanur Rahman, ACMA, CDCS, DAIBB, DIB; Contact: 01870478713 2

 Credit Operations and Management (COM)
Working Capital Management (WCM)
Raw materials 3 Weeks 4,500
Labors 3 Weeks 6,000
Overheads 3 Weeks 3,000 13,500
Finished goods 2 Weeks 9,000
Debtors 8 Weeks 36,000
Total Current Assets 63,000
B. Current Liabilities
Creditors 5 Weeks 7,500
Total Current Liabilities 7,500
Working Capital requirements 55,500

DAIBB June 2020

The Board of Directors of Rawnok Engineering Ltd. Request you to prepare a statement showing the
working capital requirements for a level of activity at 20,000 units of production. The following
information is available for your calculation:
Per unit cost
Taka
Raw materials 90
Direct labour 40
Overheads 75
Total costs 205
Profit 60
Selling price per unit 265
Additional information:
(i) Raw materials are in stock on average one month.
(ii) Materials are in process on average two weeks
(iii) Finished goods are in stock on average one month
(iv) Credit allowed by suppliers are one month
(v) Time in lag in payment of wages 1.5 weeks
(vi) Time to lag in payment from debtors 2 months
(vii) Average time lag in payment of overheads 1 month
(viii) 20% of the output is sold in cash
(ix) Cash in Cash in hand expected to be Tk.50,000
It is assumed that 4 weeks is equivalent to a month.

Solution:

Assuming that 1 year consists of 52 weeks

Average weekly production = 20,000 units ÷ 52 weeks = 385 units Average weekly costs:

Raw materials 385 units × Tk.90 34,650

Md. Mizanur Rahman, ACMA, CDCS, DAIBB, DIB; Contact: 01870478713 3
 Credit Operations and Management (COM)
Working Capital Management (WCM)
Labor 385 units × Tk.40 15,400
Overhead 385 units × Tk.75 28,875
Finished goods 78,925
Rawnok Engineering Ltd.

Statement of Working Capital

Requirement
Requirement per Holding Taka Taka
week Period
A. Current Assets
1) Raw Materials 34,650 4 138,600
2) WIP
a) Raw materials 34,650 2 69,300
b) Direct Labor 15,400 2 30,800
c) Overhead 28,875 2 57,750 157,850
3) Finished goods 78,925 4 315,700
4) Debtors (at cost 63,140 8 505,120
equivalent)
5) Cash in hand 50,000
Total Current assets 1,167,270
B. Current liabilities
1) Creditors 34,650 4 138,600
2) Wages 15,400 1.5 23,100
3) Overhead 28,875 4 115,500
Total Current Liabilities 277,200
Estimated working capital requirement 890,070

Md. Mizanur Rahman, ACMA, CDCS, DAIBB, DIB; Contact: 01870478713 4