Problem No.

1
You are required to prepare a statement showing the working capital required to
finance the level of activity of 36,000 units per year from the following information-
Per Unit
Rs.
Raw Materials 12
Direct Labour 3
Overheads 9
Total Cost 24
Profit 6
Selling Price 30
1) Raw Materials are in stock on an average for 2 months.
2) Materials are in process on an average for half - a - month.
3) Finished goods are in stock on an average for 2 months.
4) Credit allowed by creditors is two months of raw materials supplied.
5) Credit allowed to Debtors is three months.
6) Lag in payment of wages is half month.
7) Cash on Hand and at Bank expected to be Rs. 14,000/-.
Also calculate MPBF as per Tandon Committee recommendation, assuming that of
the current assets is 15% is core current assets.

Statement of Working Capital Requirement

Particulars RS Rs
CURRENT ASSETS
a) Stock of Raw material 72,000
(36000*2m)
b) Stock of WIP (54000*1/2m) 27,000
c) Stock of Finished Goods 1,44,000
(72000*2m)
d) Debtors (90000*3) 2,70,000
e) Cash and Bank (given) 14,000
Total Current Assets (A) 5,27,000
CURRENT LIABILITIES
A. Creditors (36000*2m) 72,000
B. Outstanding Wages (9000*1/2 m) 4,500
Total Current Liabilities (B) 76,500

Working Capital (A-B) 4,50,500

 WORKING NOTES

Step 1: Calculation of Monthly Production

Monthly Production = Total production/12

= 36000/12

= 3000units pm

Step 2: Preparation of Monthly Cost Sheet

Particulars Rs

Raw material (12*3000) 36000

Labour (3*3000) 9000
Overheads (9*3000) 27000
Total Cost 72000
Add Profit (6*3000) 18000
Sales (30*3000) 90000

step 3: Valuation of WIP

Material 100% 36000

Labour 50% 4500
Overheads 50% 13500
Total 54000

Step 4: Assumptions

1. Debtors are calculated on the basis of sales.

2. Stock of WIP is calculated on the basis of 100% of Raw material, 50 % of
Labour and 50% of Overheads.
 Calculation of MPBF

Method 1
For low risk category of borrowers
= 0.75 (CA – CL)
= 0.75* 450500
= Rs. 3,37,875/-
Method 2
For medium risk category of borrowers
= 0.75CA – CL
= 0.75 * 5,27000 – 76500
= 3,95,250 – 76500
= Rs. 3,18,750
Method 3
For High risk category of borrowers
= 0.75 (CA- CCA) – CL
= 0.75 (527000 – 79050) – 76500
= 0.75 * 447950 – 76500
=Rs. 2,59,463/-

3. You are required to prepare a statement showing the working capital required to
finance the level of activity of 72,000 units per year from the following information:-
Per Unit
Rs.
Raw Materials 24
Direct Labour 6
Overheads 18
Total Cost 48
Profit 12
Selling Price 60
1) Raw Materials are in stock on an average for 3 months.
2) Materials are in process on an average for half - a - month.
3) Finished goods are in stock on an average for 4 months.
4) Credit allowed by creditors is 3 months of raw materials supplied.
5) Credit allowed to Debtors is three months.
6) Lag in payment of wages is half month.
7) Cash on Hand and at Bank expected to be Rs. 28,000/-.
Also calculate MPBF as per Tandon Committee recommendation, assuming that of the
current assets is 10% is core current assets.

Particulars RS Rs
CURRENT ASSETS
f) Stock of Raw material (144000*3m) 4,32,000
 g) Stock of WIP (234000*1/2m) 1,17,000
h) Stock of Finished Goods (288000*4m) 11,52,000
i) Debtors (360000*3) 10,80,000
j) Cash and Bank (given) 28,000
Total Current Assets (A) 28,09,000
CURRENT LIABILITIES
C. Creditors (144000*3m) 4,32,000
D. Outstanding Wages (36000*1/2 m) 18,000
Total Current Liabilities (B) 4,50,000

Working Capital (A-B) 23,59,000

WORKING NOTES

Step 1: Calculation of Monthly Production

Monthly Production = Total production/12
= 72000/12
= 6000 units pm
Step 2: Preparation of Monthly Cost Sheet
Particulars Rs

Raw material (24*6000) 144000

Labour (6*6000) 36000
Overheads (18*6000) 108000
Total Cost 288000
Add Profit (12*6000) 72000
Sales (60*6000) 360000

Step 3: Valuation of WIP

Material 100% 1,44,000
Labour 50% 18000
Overheads 50% 54000
Total 2,34,000
Step 4: Assumptions
1. Debtors are calculated on the basis of sales.
2. Stock of WIP is calculated on the basis of 100% of Raw material, 50 % of Labour and
50% of Overheads.
Calculation of MPBF

Method 1 Method 2 Method 3

For low-risk category of For medium risk category For high-risk category of
borrowers of borrowers borrowers

0.75 (CA-CL) 0.75CA – CL 0.75(CA-CCA) - CL

0.75*2359000 0.75*2809000-450000 0.75(2809000-10%)-450000
= 17,69,250 =2106750-450000 =0.75*2528100-450000
=16,56,750 =1896075-450000
=14,46,075

4. With the following information prepare a statement showing the working capital required to
finance a level of activity of 10,800 units per annum :-
i) Selling price is Rs. 50 per unit.
ii) Analysis of one rupee of sales:-
(a) Raw materials 40% 20
(b) Direct Wages 35% 17.5
(c) Overheads 15% 7.5
(d) Profit 10% 5

iii) Raw materials are expected to remain in store for an average period of two
months before being issued for production and materials are in process on an average
period of six weeks.
iv) Finished goods will stay in store approximately for six weeks before despatch to
customers.
v) Credit allowed to debtors is for a period of two months.
vi) Credit allowed by creditors is for a period of two months.
vii) Lag in payment of wages and overheads is for a period of two weeks.
viii) Cash in hand and at bank is expected to be Rs. 10,000.
It may be noted that production is carried on evenly during the year and wages and overheads
accrue similarly. Assume four weeks a month.
Also calculate MPBF as per Tandon Committee recommendation, assuming that of the current assets
25% is core current assets.
Statement of Working Capital Requirement
Particulars Rs Rs
CURRENT ASSETS:
 a. Stock of Raw material (18000*2m) 36000
b. Stock of Finished foods (40500*1.5m) 60750
c. Stock of WIP (29250*1.5m) 43875
d. Debtors (45000*2m) 90000
e. Cash (Given) 10000
TOTAL CURRENT ASSETS (A) 240625

CURRENT LIABILITIES
a. Creditors (18000*2m) 36000
b. Outstanding Wages (15750*0.5m) 7875
c. Outstanding OH (6750*.5m) 3375
CURRENT LIABILITIES (B) 47250

WORKING CAPITAL (A-B) 193375

WORKING NOTES

Step 1: Calculation of Monthly Production

Monthly Production = Total production/12
= 10800/12
= 900 units
Step 2: Preparation of Monthly Cost Sheet
Particulars Rs

Raw material (20*900) 18000

Labour (17.5*900) 15750
Overheads (7.5*900) 6750
Total Cost 40500
Add Profit (5*900) 4500
Sales (50*900) 45000

Step 3: Valuation of WIP

Material 100% 18000
Labour 50% 7875
Overheads 50% 3375
Total 29250
Calculation of MPBF
Method 1 Method 2 Method 3
For low-risk category of For medium risk category For high-risk category of
borrowers of borrowers borrowers

0.75 (CA-CL) 0.75CA – CL 0.75(CA-CCA) - CL

0.75*193375 0.75*240625-47250 0.75(240625-25%)- 47250
=1,45,031 = 180469-47250 = 0.75*180469-47250
= 1,33,219 = 135352-47250
= 88,102

The annual capacity of a manufacturing company is to produce 6,000 units.

From the information given below, calculate the working capital requirement
on an estimated basis to sustain the normal activity level.
i) Elements of Cost :- Per Unit
Rs.
Direct Material 4
Direct Labour 3
Overhead 100% of Direct Labour
ii) Profit per unit 20% of selling price.
iii) Other Particulars :-
(a) Raw materials storages period - 2 months.
(b) Processing time - 3 months.
(c) Finished goods in stores - 1 month.
(d) Credit to Debtors - 2 months.
(e) Credit from Creditors - 1 month.
(f) Lag in wage payment - 1 month.

It may be assumed that production and overhead accrue evenly throughout the year.
Also calculate MPBF as per Tandon Committee recommendation
(HOMEWORK)
Particulars Rs

Raw material (4*500) 2000

Labour (3*500) 1500
Overheads (3*500) 1500
Total Cost (10*500) 5000
Add Profit (2.5*500) 1250
Sales (12.5*900) 6250
P/C P/S
P/S-P P/S
1/5-1 1/5
¼ 1/5
Cost 80 10
Profit 20 2.5
Sales 100 12.5

Answer: Total Current Assets

Working Capital: 28,500
MPBF:
Method I 21375
Method II 20500

From the following data, prepare a statement showing working capital requirements for the
year, 2021:-
a) Estimated activity / operations for the year 1,30,000 units (52 weeks).
b) Stock of raw material 2 weeks and material in process for 2 weeks, 50% of wages and
overheads are incurred.
c) Finished goods 2 weeks storage.
d) Creditors 2 weeks.
e) Debtors 4 weeks.
f) Outstanding wages and overheads 2 weeks each.
g) Selling price per unit at Rs. 15.
h) Analysis of cost per unit is as follows :-
1
i) Raw material 33 /3% of sales.
ii) Labour and overheads in the ratio of 6:4 per unit.
iii) Profit is at Rs. 5 per unit.
Assume that operations are evenly spread through the year. Also calculate MPBF as per
Tandon Committee recommendation, assuming that of the current assets 20% is core
current assets.

Statement of Working Capital Requirement

Particulars Rs Rs
CURRENT ASSETS:
f. Stock of Raw material ()
g. Stock of Finished foods (.5m)
 h. Stock of WIP
i. Debtors (
j. Cash (Given)
TOTAL CURRENT ASSETS (A)

CURRENT LIABILITIES
d. Creditors (
e. Outstanding Wages (
f. Outstanding OH (
CURRENT LIABILITIES (B)

WORKING CAPITAL (A-B)

WORKING NOTES

Step 1: Calculation of Weekly Production

Weekly Production = Total production/52
= 130000/52
= 2500 units
Step 2: Preparation of Weekly Cost Sheet
Particulars PU Rs

Raw material (15*1/3) 5 12500

Labour 3 7500
Overheads 2 5000
Total Cost 10 25000
Add Profit 5 12500
Sales 15 37500

5*6/10= 3 5*4/10= 2

Step 3: Valuation of WIP

Material 100% 12500
Labour 50% 3750
Overheads 50% 2500
Total 18750
Calculation of MPBF
Method 1 Method 2 Method 3
For low-risk category of For medium risk category For high-risk category of
borrowers of borrowers borrowers

0.75 (CA-CL) 0.75CA – CL 0.75(CA-CCA) - CL

Rs. 159375/- Rs. 146875/- Rs. 107500/-

A factory produces 84,000 units during the year and sells them at Rs. 10 per unit.
Various cost ratios are as follows: -
Raw Materials 60%
Labour 20%
Overheads 10%
–––––
Total Cost 90%
Profit 10%
–––––
Selling Price 100%
–––––
The following additional information is available: -
1. The activities of purchasing, producing and selling occur evenly
throughout the year.
1
2. Raw Materials equivalent to 1 /2 months’ supply is stored in go down.
3. The production process takes 15 days.
4. Finished goods equal to one month are carried in stock.
5. 40% of the sales are for cash. Out of the credit sales 50% customers enjoy
two months credit and balance customers enjoy three months credit.
6. 20% of the purchases are made against cash and the balance on two months
credit.
7. Time lag in payment of wages and overheads is 1 month.
8. The Bank has sanctioned overdraft limit of 70% on all categories of stock at
cost.
9. Provide 10%of working Capital for contingencies.
Required:
1. Draw a forecast of working capital requirement of the factory.
2. Calculate MPBF as per Tandon Committee recommendation .

Statement of WCR
Particulars Rs Rs
CURRENT ASSETS:
 a. Stock of Raw material (42000*1.5M) 63000
b. Stock of Finished goods (63000*1M) 63000
c. Stock of WIP (52500*0.5M) 26250
d. Debtors (70000*60%*50%*2M) 42000
e. Debtors (70000*60%*50%*3M) 63000

TOTAL CURRENT ASSETS (A) 257250

CURRENT LIABILITIES
a. Creditors (42000*80%*2M) 67200
b. Outstanding Wages(14000*1M) 14000
c. Outstanding OH (7000*1M) 7000
d. Bank OD (152500*70%) 106750
CURRENT LIABILITIES (B) 194950

WORKING CAPITAL (A-B) Before 62300

Contegencies
Add Margin of safety (10%) 6230
NET WCR 68530

Working notes:
Monthly Production= 84000/12=7000 units
Monthly Cost sheet:
Particulars Rs
Material (7000*6) 42000
Labour (7000*2) 14000
OH (7000*1) 7000
Total Cost (7000*9) 63000
Profit (7000*1) 7000
Sales (7000*10) 70000

Valuation Of WIP

Material 100% 42000

Labour 50% 7000
OH 50% 3500
Total 52500

MPBF:
Method 1 Rs. 46856/-
Method 2 Cannot be calculated