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231111

The document outlines the cost sheet of PQR Ltd, detailing costs per unit for raw materials, direct labor, and overheads, leading to a total cost of ₹110 and a selling price of ₹130. It estimates the working capital requirement, calculating total current assets at ₹1,281,250 and current liabilities at ₹390,000, resulting in a net working capital requirement of ₹891,250. Assumptions regarding overheads, work-in-progress valuation, and time periods are also provided.

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Kashish Premwani
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48 views

231111

The document outlines the cost sheet of PQR Ltd, detailing costs per unit for raw materials, direct labor, and overheads, leading to a total cost of ₹110 and a selling price of ₹130. It estimates the working capital requirement, calculating total current assets at ₹1,281,250 and current liabilities at ₹390,000, resulting in a net working capital requirement of ₹891,250. Assumptions regarding overheads, work-in-progress valuation, and time periods are also provided.

Uploaded by

Kashish Premwani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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KASHISH PREMWANI 231099 BCOM(H) - C

The cost sheet of PQR Ltd.provides the following data :


Cost of elements Cost Per Unit
Raw Material 50
Direct Labour 20
Overheads( inc depreciation of Rs.10) 40
Total cost 110
Profits 20
Selling Price 130

Additional Information
Level of activity 54000 units of production
Raw materials in stock 1 average month
Work in progress 0.5 average month
Finished goods in stock 1 average month
Credit allowed by suppliers 1 month
Credit allowed to debtors 1 month
Lag in payment of wages 10 average days
Lag in payment of overheads 30 average days
Cash balance is expected to be Rs. 1,00,000. 25% sales are on cash basis.
Estimate the working capital requirement of the firm on the basis of components of working capital

SOLUTION
a) Current Assets
Investment in inventories
Raw Material ₹ 225000
Work in progress ₹ 168750
Finished goods ₹ 450000 843750
Investment in debtors ₹ 337500
Desired cash balance(given) ₹ 100000

Total Current Assets (A) GWC ₹ 1281250

b) Current Liabilities
Credit allowed by suppliers ₹ 225000
Wages ₹ 30000
Overheads ₹ 135000

Total Current Liabilities (B) ₹ 390000

Net Working Capital Requirement(A-B) ₹ 891,250

Assumptions Used
1.The overheads of Rs40 include a depreciation of Rs.10 per unit which is a non-cash item.
So,this depreciation has been ignored and overhead cost is taken as Rs.30
2.In valuation of work-in progress, the raw materials are taken at full requirement but wages
and overheads are taken at 50% on the assumption that on an average all units of work-in
progress are 50% complete.
3.It is assumed that a month consists of 30 days and hence a year consists of 360 days.

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