Page 154 - DMGT409Basic Financial Management

Unit 8: Working Capital Management

Working Notes Notes

1. Calculation of manufacturing expenses:
Sales 18,00,000

Less: Gross profit 25% on sales 4,50,000
Total cost manufacture 13,50,000
Less: Cost of materials 4,50,000
Cost wages 3,60,000 8,10,000

Manufacturing Expenses 5,40,000
2. Depreciation:
Manufacturing Expenses 5,40,000
Less: Cash manufacturing expenses 4,80,000
60,000

3. Calculation of Total cash cost:
Total cost of manufacture 13,50,000
Less: Depreciation 60,000
12,90,000

Administration expenses 1,20,000
Sales expenses 60,000 1,80,000
Total Cost 14,70,000
Illustration 3:
Cost sheet of XYZ company provides the following particulars:

Amount per unit (`)
Raw –materials 80
Direct labour 30
Overhead 60
Total cost 170
Profi t 30
Selling price 200
The following further particulars are available:
Raw materials in stock, on average one month: Materials are in process, on an average of half a
month ; Finished Goods in Stock, on an average of one month.
Credit allowed by suppliers in one month: Credit allowed to debtors is two months ; average
time-lag in payment of wages is 1½ weeks and is one month in overhead expenses; one fourth
of the output is sold against cash ; cash in hand and at bank is expected to be ` 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.
You may assume that production is carried on evenly throughout the year, and wages and
overheads accrue similarly (WIP at 50% completion stage).

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