Estimation of Current Assets
Current assets estimation includes:
- Raw materials Requirement cost
This is computed by multiplying the daily requirement by the age of raw materials. Assume if the raw material cost is $5 per unit and the company expects to produce and sell 36000 units in the coming year and the age of raw materials is 45, raw materials requirement cost would be = Daily requirement x Age of raw materials.
Raw Materials requirement cost = (36000 x $5 x 45) / 365 = $22,192
- Work-in-Progress stock requirement cost
This is computed by multiplying the daily requirement of various sub-components of WIP by the age of WIP (Work in progress). Suppose if the Raw material cost is $5 per unit and where as wages is $4 per unit and production overhead is $4 per unit and the age of WIP is 30 days, the WIP (Work in progress) stock requirement cost would be: (36000 units per year)
Raw material component = 36,000 x $5 x 30 /365 = $14,795
Wages (Direct labor) Component = 36,000 x $4 x 30 / 365 = $11,836
Production overhead component = 36,000 x $4 x 30 / 365 = $11,836
Total WIP requirement cost = $38,467