Question:

While preparing a project report on behalf of a client you have collected the following facts. Estimate the net working capital required for that project. Add 10 per cent to your computed figure to allow contingencies:

Selling price, Rs 200 per unit Level of activity, 1,04,000 units of production per annum Raw materials in stock, average 4 weeks Work in progress (assume 50 per cent completion stage in respect of conversion costs and 100 per cent completion in respect of materials), average 2 weeks Finished goods in stock, average 4 weeks Credit allowed by suppliers, average 4 weeks Credit allowed to debtors, average 8 weeks Lag in payment of wages, average 1.5 weeks Cash at bank is expected to be, Rs 25,000. You may assume that production is carried on evenly throughout the year (52 weeks) and wages and overheads accrue similarly. All sales are on credit basis only.

Please proper explain and do not copy from Chegg. Otherwise i have to report the answer.

Particulars Estimated cost per unit of production: Raw material Direct labour Overheads (exclusive of depreciation, Rs 10 per unit) Total cash cost Amount per unit Rs 80 30 60 170