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Business Arithmetic — Entrepreneurship STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceEntrepreneurshipBusiness Arithmetic3 Marks
Question
How is working capital calculated? Illustrate with an example.
✓

Answer

Working capital refers to that part of capital which is required for holding current assets. It is calculated with reference to the operating cycle of a business. e.g. X Company Limited is planning to produce 1000 units of component Y per week. The raw material costs ₹ 2 per unit and labour cost is ₹ 1 per unit. Raw material is stored for 2 weeks, work-in-progress duration is 1 week, finished goods are kept for a period of 3 weeks and debtors are allowed a credit period of 2 weeks. Working capital will be calculated as follows:
Raw Material + Work-in-progress (Material + labour) + Finished Goods + Debtors
(1,000 × 2 × 2) + (1.000 × 2 × 1) + (1,000 × 1 × 1)+(1000 3 × 3) + (1.000 × 3 × 2)
= 4000 + 2,000+1,000+ 9,000 +6,000 = ₹22,000

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