Skip to content

CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management

Anand Packaging plans to produce 60,000 units a year, selling at ₹50 per unit. Cost per unit: materials ₹20, labour ₹10, overheads ₹10 (including depreciation of ₹2). Assume a 12-month year and even activity. Raw material stock is 1 month, work-in-progress is 0.5 month (fully complete as to material, labour and overheads), finished goods stock is 1 month, debtors get 2 months' credit (valued at cash cost), creditors for materials give 1 month's credit, and a minimum cash balance of ₹50,000 is kept. The net working capital required, on a cash cost basis, is:

Net working capital is ₹7,15,000. On a cash cost basis, depreciation is excluded, so monthly cost is ₹1,90,000. Current assets total ₹8,15,000 including ₹50,000 cash, and deducting ₹1,00,000 of creditors for materials leaves ₹7,15,000.

  1. A₹7,15,000Correct
  2. B₹7,50,000
  3. C₹8,15,000
  4. D₹12,35,000

Explanation

Monthly cash costs: materials ₹1,00,000, labour ₹50,000, overheads excluding depreciation (₹8 × 5,000 units) ₹40,000, total ₹1,90,000. Current assets = RM 1,00,000 + WIP 95,000 + FG 1,90,000 + debtors 3,80,000 + cash 50,000 = ₹8,15,000. Less creditors ₹1,00,000 gives ₹7,15,000. Including depreciation gives ₹7,50,000, and ignoring creditors gives ₹8,15,000.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Working Capital Management shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Working Capital ManagementFree diagnostic mock

More Introduction to Working Capital Management questions