Working Capital Management:

1. X and Y Ltd is desirous to purchase and has consulted you. You have to advise them
is the average amount of working capital which will be required in the first years
working.
You are given the following estimates and are instructed to add 10 percent to your
computed figures to allow for contingencies.
Particulars Amount for the year(Rs)
1. Average amount backed for the
stocks
Stock of finished product 5000

Stock of stores and materials 8000

2. Average credit given
Inland sales, 6 weeks credit 3,12,000
Export sales , 1.5 weeks credits 78,000

3. Average time lag in payments of

wages and other outgoings
Wages 1.5 weeks 2,60,000
Stock and materials 1.5 months 48,000
Rents and Royalties, 6months 10,000
Clerical Staff, .0.5 months 62,400
Manager,0.5 months 4,800
Miscellaneous,1.5 months 48,000
4. Payments in advance
Sundry expenses(paid quarterly in 8,000
advance)
Calculate the average amount of working capital required

2. Management of a company has called for a statement showing the working capital
needed to finance a level of activity of 70,000 units of outputs for the year. Cost
structure for the company’s products is as below:

Cost per unit(Rs)

Raw Material 52
Direct Labor 19.5
Overheads 39
Total Cost 110.5
Profit 19.5
Selling price 130
Additional information:
1. Minimum desired cash balance is Rs 1,20,000
2. Raw Materials are held in stock on an average for one month
3. Work in progress will approximate half a month.
4. Finished goods remain in warehouse on an average for a month
5. Supplier of material extend a month’s credit and debtors are provided two months
credit.
 6. There is a time lag in payments of wages of one and half weeks and in case of
overheads it is one month
One fourth of sales are on cash basis. It is assumed that production is carried on evenly
throughout the year and wages and overheads accrue similarly and a time period of 4
weeks is equivalent to a month.

3. The management of a company has called for a statement showing the working capital
needed to finance a level of activity of 1,04,000 units of outputs for the year. Cost
structure for the company’s products is as below:

Cost per unit (Rs)

Raw Material 80
Direct Labor 30
Overheads( Exclusive of 60
depreciation Rs 10 per
unit)
Total Cash Cost 170
Selling price 200 Rs Per unit
Additional information:
7. Minimum desired cash balance is Rs 25,000
8. Raw Materials are held in stock on an average for 4 weeks
9. Work in progress (assume 50% completion stage) will approximate on average two
weeks
10. Finished goods remain in warehouse on an average for four weeks
11. Supplier of material extend a 4 weeks credit and debtors are provided 8 weeks credit.
12. There is a time lag in payments of wages of one and half weeks.
13. It is assumed that production is carried on evenly throughout the year and wages and
overheads accrue similarly and a time period of 4 weeks is equivalent to a month.
Add 10 percent to your computed figure to allow for contingencies.

4. Grow More Ltd is presently operating at 60% level, producing 36,000 units per annum.
In view of favorable market conditions, it has been decided that from 1st January 2000,
the company would operate at 90% capacity. The following information are available:
a. Existing cost-price structure per unit is given below:
Raw Material Rs. 4.00
Wages 2.00
Overheads (Variable) 2.00
Overheads (Fixed) 1.00
Profits 1.00
b. It is expected that the cost of raw material, wages rate, expenses and sales per unit will
remain unchanged in 2000.
c. Raw materials remain in. stores for 2 months before these are issued to production. These
units remain in production process for 1 month.
d. Finished goods remain in godown for 2 months.
e. Credit allowed to debtors is 2 months. Credit allowed by creditors is 3 months.
f. Lag in wages and overhead payments is 1 month. It may be assumed that wages and
overhead accrue evenly throughout the production cycle.
You are required to calculate the working requirements on an estimated basis to sustain the
increased production level.