Overhead and wages - The work in progress period is one month. So, the wages and overheads included in work in progress, are on an average for half month or 1/24 of a year. Wages = Rs. 1.08.000 = 4,500 24 Overhead = Rs. 1.08,000 + 36.000 = 6,000 24 The valuation of finished goods can also be arriving at as follows: Number of units = 4,500 x 2 = 9,000 Variable cost = Rs. 8 per unit Fixed cost (Rs. 36,000 / 12) x2 = Rs. 6.000 Total cost of finished goods (9,000 x 8) + 6,000 =Rs. 78,000 As the decision to increase the operating capacity from 60% to 90% is already taken, it has been assumed that the opening balance of raw materials, work in progress and finished goods have already been brought to the desired level. Consequently, goods purchased during the period will be only for the production requirement and not for increasing the level of stock Illustration 3 The management of Royal Industries has called for a statement showing the working capital to finance a level of activity of 1,80,000 units of output for the year. The cost structure for the company's product for the above mentioned activity level is detailed below: Cost per unit Raw Materials Rs. 20 Direct Labour 5 Overheads (include depreciation of Rs. 5 per unit) 40 Profit Selling Price 50 470 15 10 ] Additional Information: (a) Minimum desire cash balance is Rs. 20,000 (b) Raw Materials are held in stock, on an average, for two months (c) Work in progress (assume 50% competition stage) will approximate to half-a-month's production (d) Finished goods remain in warehouse, on an average for a month (e) Suppliers of materials extend a month's credit and debtors are provided two month's credit, cash sales are 25% of total sale. (h. There is time lag in payment of wages of a month; and half- a month in the case of overheads. From the above facts, you are required to prepare a statement showing working capital requirements