Working Capital 10 Feb

ROHIT D. AKOLKAR’S “NARMADA” MANAGEMENT AND COMMERCE CLASSES.(MBA 1ST YEAR –SQM, MANAGEMENT ACCOUNTING, F.M.) (MBA 2ND YEAR- AFM, DIRECT TAXES) Mob. No +91-9763261738

Que. No. (1) Sam Industries Ltd. plans to sell 30000 units next year. The expected cost of goods sold is as follows:

Per Unit (Rs.)

Raw Materials 200

Manufacturing expenses 60

Operating expenses including selling and distribution expenses 40

Selling Price 400

The duration at various stages of the operating cycle is expected to be as follows:

Raw materials stage 2 months

Work-in-progress stage 1 month

Finished goods stage ½ month

Debtors Stage 1 month

Assuming the monthly sales level to be 2500 units.

(1) Calculate the investment in various current Assets.

(2) Estimate the working capital requirement, if the desired cash balance is 5% of the working capital requirements.

Que. No. (2) XY Ltd. a trading company, provides the following information. Annual sales during the year was

Rs. 2400000.

Analysis 60%

Operating Expenses 15%

Profit 25%

VENUE: NEAR RAM MANDIR HALL, MOHAN NAGAR, CHINCHWAD, PUNE.


Average credit allowed to debtors-------- 2.5 months

Average credit period allowed by creditors--------- 1.5 months

Raw materials remain in store on average ------------ 1 month

Processing period on average ----------------------- 2 months

Finished Goods remain in warehouse on average------------- 3 months

Bank overdraft--------------------------------------------- Rs. 1000000

10% of the working capital (including contingencies) is to be kept in hand for contingencies.

You are required to determine the capital requirement of XY Ltd. on the basis of the given information.

Que. No. (3) From the following information you are required to estimate the net working capital requirement.

Cost per unit.(Rs.)

Raw Materials 400

Direct Labour 150

Overheads (excluding depreciation) 300

Total 850

Additional Information :-

Selling price Rs. 1000 per unit.

Output 52000 units per annum

Raw Materials in stock average 4 weeks

Work In Progress (Assuming 50% completion stage with full material consumption) average 2 weeks

Finished Goods in stock average 4 weeks

Credit allowed by suppliers average 4 weeks



Credit allowed to debtors average 8 weeks

Cash at bank is expected to be Rs. 50000

Assume that production is sustained at an even pace during the 52 weeks of the year. All sales are on credit basis.

State any other assumption that you might have made while computing.

Q.4) The Board of Directors of Nanak Engineering Company Pvt. Ltd. requests you to prepare a statement

showing the working capital requirement for a level of activity at 1560000 units of production. A Proforma cost

sheet of a company provides the following data:

Cost (Per Unit) Rs.

Raw material 90.0

Direct labour 40.0

Overhead 75.0

Total Cost (per unit) 205.0

Profit 60

Selling price 265

Additional Information:

Average material in stock : one month

Average materials in process: 2 weeks

Finished Goods in stock on an average one month

Credit allowed by supplies one month

Credit allowed to debtors 2 month

Time lag in payment of wages 1.5 weeks



Overheads – one month. 20% of sales are on cash basis.

Cash balance is expected to be Rs. 60,000.

You may assume that production is carried on evenly throughout the year and wages and overheads accrue similarly.

(Time period is equivalent to 4 weeks. i.e. 12 * 4= 48weeks)

Que.N0.( 5.)

A Proforma cost sheet of a company provides the following particulars.

Element of cost Amount per unit

Material 50%

Direct labour 10%

Overheads 10%

The following further particulars are available:

a) It is proposed to maintain a level of activity of 1,00,000 units.

b) Selling price is Rs. 10 per unit.

c) Raw materials are expected to be in the stores for an average of 2 months.

d) Materials will be in process, on average one month.

e) Finished goods are required to be in stock for an average of 2 months.

f) Credit allowed to debtors is 3 months.

g) Credit allowed by supplier is two months.



Que. No. ( 6).( May 2006 )

Calculate the working capital from the following particulars:

a) Annual expenses Amt.(Rs.)

Wages 52000

Stores and materials 9600

Office salaries 12480

Rent 2000

Other expenses 9600

b) Average amount of stocks to be maintained

Finished goods stock 1000

Material/stores stock 1600

c) Expenses paid in advance (quarterly advance)..(P.A.) 1600

d) Annual sales

Home market 62000

Foreign market 15600

e) Lag in payment of

Wages 1.5 weeks

Stores and material 1.5 weeks

Office salaries 5 months

Rent 6 months

Other expenses 1.5 months



Que .No.(7) (Dec 2007)

UP Products Ltd. sells its products on a gross profit of 20% on sales. The following information is extracted from its

annual accounts for the current year ended on 31st March 2007.

Sales at 3 months credit…………………………………………………… Rs.40,00,000

Raw material……………………………………………………………… Rs.12,00,000

Wages paid – Average Time Lag 15 days……………………………. Rs.9,60,000

Manufacturing expenses paid – 1 month in arrears…………… Rs.12,00,000

Administration expenses- 2 month in arrears…………………… .Rs.4,80,000

Sales promotion exp payable half year in advance…………….. Rs.2,00,000

The company enjoys one month credit from the suppliers of raw material and maintains a 2 months stock of raw materials

and one and the half months of finished goods. The cash balance is maintained at Rs. 1,00,000 as a precautionary

measure. Assuming 10% margin. Find out the working capital requirements of the company.



Que . No. (8) (May 2008)

The management of Virgo Ltd has called for a statement showing the working capital needed to finance a level of activity

of 3,00,000 units of output for the year. The cost structure for the company is as follows:

Cost per Unit Rs

Raw material direct 20

Labour 5

Overheads 15

Total cost 40

Profit 10

Selling price 50

Past trends indicates that raw materials are held in stock on an average for two months.

Work in progress (50% complete) will approximate to half monthly production.

Finished goods remain in the warehouse on an average for the month.

Suppliers for materials extend one month credit.

For debtors two months credit is usually allowed.

A minimum cash balance of Rs. 25000 is expected to be maintained.

The production pattern is assumed to be uniform throughout the year.

Que.No.( 9). (May 2009)

P Ltd. sells goods at a gross profit of 25%. Depreciation is considered in cost of production.

a) Sales (2 month credit) : Rs.18,00,000



b) Material consumed (1 month credit ): Rs.4,50,000

c) Wages paid (1 month delay) : Rs. 3,60,000

d) Administration expenses (1 month lag) : Rs.1,20,000

e) Sales promotion expenses paid quarterly in advance Rs.60,000.

f) Income tax payable in 4 equal installments of which one falls due in the next year: Rs.1,50,000.

The company also keeps one month stock of each of raw material and finished goods. It also keeps cash of

Rs.1,00,000. Assuming 15% safety margin. Compute the working capital requirement on cash basis.

Que. No. (10) (Dec 2009)

“A’’ Ltd. plans to sell 30,000 units next year. The expected cost structure is as follows.

Particulars Rs. (per unit)

Raw material 100

Manufacturing expenses 30

Selling Administration & financial expenses 20

Selling price 200

The duration at various stages of the operating cycle is expected to be as follows:

Raw material stage 2 month

Work in progress 1 month

Finished stage ½ month

Debtor’s stage 1 month



Assuming the monthly sales of 2,500 units, estimate the gross working capital requirement if the desired cash balance is

5% of the gross working capital & W-I-P is25% complete with respect to manufacturing expenses.

Que .No.(11) (May 2010)

M/s Sameera Ltd. submit following details of its costs. Calculate working capital requirement.

Particulars cost (per units) Rs.

Raw material 400

Direct labour 150

Overhead (includes depreciation & amortization Rs.50) 350

Total cost 900

Additional data:

a) Minimum cash balance Rs. 40000.

b) Profit per unit 150/-output p.a. 52000 units

c) Raw materials remain in stores avg. 4 weeks.

d) Credit to customers avg. 8 weeks & received from supplier avg. 4 week.

e) Finished goods avg. 4 weeks. Partly finished goods average 2 weeks. (Stage of completion 100% material & 50%

for other element of cost)

Que.No.( 12) (Dec 2010)

From the following information of XYZ ltd. Calculate-

a) Net operating cycle period.

b) Number of operating cycles in a year.

1) Raw material inventory consumed during the year Rs.12,00,000.

2) Average stock of raw material 1,00,000

3) Work in progress inventory (cost of production)Rs. 10,00,000



4) Average work in progress inventory 60,000

5) Finished goods inventory (cost of goods sold) Rs.16,00,000

6) Average finished goods stock held Rs. 80,000

7) Average collection period for debtors 45 days

8) Average credit period availed from suppliers 30 days

9) No. of days in a year 360 days.

Que .No.(13 ) (May 2009).

From the following information, estimate the working capital requirements to finance a level of activity of 1,04,000 units

of a product.

Particulars Amount per unit

Raw material 80

Direct labour 30

Overhead 60

Total cost 170

Profit 30

Selling price 200

Raw materials are in stock for one month. Credit allowed by suppliers is one month. Credit allowed to customers is two

months.

Lag in payment of wages 1.5 weeks.

Lag in payment of overheads one month.



Materials are in process for an average of half months. Finished goods are in stock for an average of one month. 1/4 th of

output is sold against cash. Cash in hand and bank is expected to be Rs. 25000. You may assume that production is carried

on evenly throughout the year. Wages and overheads accrue similarly and a period of 4 weeks is equivalent to a month.

Que.No. (14) .May 2010

Costs (per unit): Rs.

Raw materials 52

Direct labour 19.5

Overhead 39

Total cost (per unit) 110.5

Profit 19.5

Selling price 130

The following is the additional information available:

Average raw material in stock: one month; Average materials in process: half a Month; credit allowed by suppliers: one

month; Credit allowed to debtors: Two months. Time lag in payment of wages: One and a half weeks. Overheads: One

month. One fourth of sales are on cash basis, cash balance is expected to be Rs.1, 20,000.

You are required to prepare a statement showing the working capital needed to finance a level of activity of 70,000 units

of output. You may assume that production is carried on evenly throughout the year and wages & overheads accrue

similarly.

Que.No.( 15). Dec 2011

IAC Ltd. sells its products on a gross profit of 20% on sales. The following information is extracted from its annual

accounts.

Particulars Amounts (Rs.)

Sales at 3 months credit 40, 00,000



Raw material 12, 00,000

Wages paid average time lag 15 days 9, 60,000

Manu. Exps. Paid- one month in arrears 12, 00,000

Admin. Exps. Paid – one month in arrears 4, 80,000

Sales promotion expenses – half – yearly in advance 2, 00,000

The company enjoys one month credit from the suppliers of raw material and maintains 2 months stock of raw material

and 1 ½ months stock of finished goods. The cash balance is maintained at Rs.1, 00,000.

Assuming a 10% margin. Find out the working capital requirements.

Que.No (16). May 2012

A proforma cost sheet of a company provides the following data:

Cost (per unit) Rs.

Raw material 40

Direct labour 15

Overhead 30

Total cost per unit 85

Profit 15

Selling price 100

The following is the additional information available:

Average raw material in stock: one month;



Average works in process: half a month,

Finished goods in stock, on average one month.

Credit allowed by suppliers- one month

Credit allowed by debtors – 2 months

Time lag in payment of wages 1.5 weeks

Overheads – one month

One fourth of sales are on cash basis.

Cash balance is expected to be Rs.1,80,000.

You are required to prepare a statement showing the working capital needed to finance a level of activity of 1,04,000 units

of output. You may assume that production is carried on evenly throughout the year and wages and overheads accrue.

Que. No. (17) (April-2012)

Prepare an estimate of working capital requirement from the following data of a trading concern.

A) Projected annual sales 80000 units.

B) Selling price Rs.8 per unit.

C) Percentage net profit as sales 20.

D) Average credit period allowed to customers -- 10 weeks

E) Average credit period allowed to suppliers – 8 weeks

F) Average stock holding in terms of sales requirement – 10 weeks.

G) Allow 20% for contingencies.

(Assuming 52 weeks in a year.)

Que. No. (18) KK Associates plans to sell 30000 units next year. The data are as under: (Dec. 2012)



Particulars Per Unit

Raw Materials 100

Manufacturing Expenses 30

Administrative, Selling Expenses and Financial Expenses 20

Selling Price 200

Duration of the operating cycle remains as under:

Raw Material 2 Months

WIP 1 Months

Finished Goods ½ Months

Debtors 1 Month

With an assumption of monthly capacity of 2500 units.

a) Calculate total investment in Currents Assets.

b) Estimate the gross working capital requirements, if the desired cash balance remains to be 5% of the gross

working capital.

Que. No. (19) A company provided the following data.

Raw Materials 52

Direct Labour 19.50

Overheads 39.00

Total 110.50

Profit 19.50

Selling Price 130.00

The following additional information is available:



Average Raw Materials in stock: one month;

Average Material in process: half-a-month;

Average Finished Goods in stock: one month;

Credit allowed by suppliers: one month: two months;

Credit allowed to debtors: Two months;

Time lag in payment of wages : one and half week;

Overheads one month;

One fourth of sales are on cash basis. Cash Balance is expected to be Rs. 120000.

You are required to prepared a statement showing the working capital needed to finance a level of

activity of 70000 units of annual output . The production is carried throughout the year on even basis and

wages and overheads accrue similarly. (Calculation be made on the basis of 30 days a month and 52 weeks

a year)

Que. No (20) The following information is available for Swagat Ltd:

Rs. In Million

Average stock of raw materials and stores 200

Average work-in-progress inventory 300

Average finished goods inventory 180

Average accounts receivable 300

Average accounts payable 180

Average raw materials and stores purchased on credit and consumed per day 10

Average work-in -process 12.5

Average cost of goods sold per day 18



Average sales per day 20

You are required to calculate:

(a) Duration of raw material stage.

(b) Duration of WIP stage.

(c) Duration of Finished Goods stage.

(d) Duration of accounts receivable stage.

(e) Duration of accounts payable stage.

(f) Duration of the operating cycle.


Documents

Working Capital 10 Feb