Practical Problem on Working Capital

Illustration : 1
From the following information pertaining to Ambika Ltd., prepare a statement showing the
Working Capital Requirements:
Budgeted Sales 2,60,000 per annum
Analysis of Sales (per unit):
Raw Materials Rs 3
Direct Labour Rs 4
Overheads Rs 2
Total Cost Rs 9
Profit Rs 1
Sale Price Rs 10
It is estimated that:
1. Raw materials remain in stock for three weeks and finished goods for two weeks.
2. Factory processing takes three weeks.
3. Suppliers allow five weeks credit.
4. Customers are allowed eight weeks credit.
Assume that production and overheads accrue evenly throughout the year.

Illustration: 2
From the following figures, prepare an estimate of the working capital
Production 30,000 units
Selling Price per unit Rs 10
Raw Material 60% of selling price
Direct wages 1/6th of raw material
Overheads Twice the Direct wages
Material in hand 2 months requirement
Production time 1 month
Finished goods in stores 3 months
Credit for material 2 months
Credit allowed to customers 3 months
Average cash balance Rs 40,000
Wages and overheads are paid in the beginning of next month.
In production all the material is charged in the initial stage and wages and overheads accrue
evenly.

Illustration: 3
Hira construction Aids Pvt. Ltd. is a manufacturer of cement. The annual accounts of the
company revealed the information as follows:
Customers were allowed three months credit period. Wages are paid after 15 days when they
become due. Advertising expenses are paid 6 months in advance. Manufacturing expenses are
paid after a month. Suppliers of manufacturing items allows one month's credit.
Administrative expenses are paid with an average time lag of one month. The cash balance is
Rs. 50,000. Finished goods are kept in stock for one and half months whereas raw material
stock is kept for two months. Contingency margin is 10% and other details
are as follows:
Production and Sales 12,00,000 units
Particulars (Rs in lacs)
Sales 20.00
Raw Materials 6.00
Manufacturing Expenses 6.00
Wages 4.80
Administrative Expenses 2.40
Advertising Expenses 1.00
Gross profit 20% on sales.
Estimate the working capital requirement of the company.
Illustration: 4
You are supplied with the following information in respect of choice Ltd. for the ensuing
year:
Production of the year 69,000 units. Finished goods in store 3 months.
Raw material in store 2 months consumption. Production process 1 months.
Credit allowed by creditors 2 months. Credit given to debtors 3 months.
Selling price per unit Rs 50. Raw material 50 per cent of selling price.
Direct wages 10 percent of selling price.
Manufacturing and administrative overheads 16 percent of selling price.
Selling overheads 4 per cent of selling price.
There is a regular production and sales cycle and wages overheads accrue evenly. Wages are
paid in the next month of accrual. Material is introduced in the beginning of the production
cycle.
You are required to ascertain its working capital requirement.

Illustration: 5
Foods Ltd. is presently operating at 60 percent level, producing 36,000 packets of snack
foods and proposes to increase its capacity utilization in the coming year by 33.33 per cent
over the existing level of production. The following data has been supplied:
i) Unit cost structure of the product at current level:
Particulars Amount (Rs)
Raw Material 4
Wages (Variable) 2
Overheads (Variable) 2
Fixed Overhead 1
Profit 3
Selling Price 12
(ii) Raw material will remain in stores for 1 month before being issued for production.
Material will remain in process for further 1 month. Suppliers grant 3 months credit to the
company.
iii) Finished goods remain in godown for 1 month.
iv) Debtors are allowed credit for 2 months.
v) Average time-lag in wages and overhead payments is 1 month and these expenses
accrue evenly throughout the production cycle.
vi) No increase either in cost of inputs or selling price is envisaged.
Prepare a statement showing working capital requirement at the new level, assuming
that a minimum cash balance of Rs 19,500 has to be maintained.
Illustration: 6 Miss Lovely wants to start a New Trading Business and provides you with the
following information:
1. Projected annual sales Rs 15,00,000/-
2. Expects that sales and purchases will evenly spread throughout the year.
3. Average gross profit to sales 20%.
4. Average stock holding in terms of sales requirements one month.
5. Average credit period allowed to Debtors two months.
6. Average credit period allowed by Creditors one month.
7. 25% of sales for cash and balance on credit.
8. Cash on hand estimated at 17,000/-
You are required to estimate Working Capital.

Illustration: 7
You are required to prepare a statement showing the working capital required to finance the
level of activity of 12,000-Units per year from the following information
1. Raw materials are in stock on an average for 2 months:
2. Materials are in process on an average for half a month.
3. Finished goods are in stock on an average for one month.
4. Credit allowed by the suppliers is l 1/2 months of purchase of raw materials and credit
allowed to the customers is 21/2 months.
5. Lag in payment of wages and overheads is one month.
6. Cash and Bank balance is expected to be 10% of Net Working Capital before considering
the Cash and Bank balance.
7. Activities are spread evenly throughout the year.
Particulars Cost per unit
Raw material 10
Wages 5
Total cost 30
Profit is 20% on selling price.