Question 6 [Estimating Working Capital Requirement Using Operating Cycle Method] X Ltd Co. wants to know working capital by operating cycle methods when : Estimated Sales 20,000 units @ $5 P.U....

Question 6 [Estimating Working Capital Requirement Using Operating Cycle Method]

X Ltd Co. wants to know working capital by operating cycle methods when : Estimated Sales 20,000 units @ $5 P.U.

Production and Sales will remain similar throughout the year. Production costs: M – 2.5 P.U., Labour 1.00 P.U. Overheads $17.500.

Customers are given 60 days credit and 50 days credit from suppliers. 40 days supply of raw materials and 15 days supply of finished goods are kept in store.

Production cycle is 15 days. All materials are issued at the commencement of each production cycle. 1/4 on an Average of working capital is kept as cash balance for contingencies