The production capacity of Quick Profit Ltd is 5,20,000 units per annum. Due to power crisis, the company can operate at 80% of the capacity level. You are asked to ascertain the Working Capital Requirement at the current level of operation. Add 10% to your computed figure to allow for contingencies.

Other information:

  1. Selling price – Rs. 20 per unit.
  2. Elements of cost (per unit):
    1. Raw materials – 40% of selling price.
    2. Labour – 30% of selling price.
    3. Budgeted overhead – Rs. 32,000 per week. Overhead includes depreciation of Rs. 8,000 per week.
  3. Planned stock will include 24,000 units of the finished goods.
  4. Time-lag information:
    1. Raw materials in stores – 3 weeks.
    2. Materials will stay in process – 2 weeks.
    3. Credit allowed to debtors – 5 weeks.
    4. Credit allowed by creditors – 1 month.
    5. Lag in payment of wages and overhead – 15 days.

25% of sales may be considered to be for cash. Assume that the production is carried on evenly throughout the year, and wages and overhead accrue similarly.

A time period of 52 weeks is equivalent to a year and a month comprises 4 weeks.

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