WORKING CAPITAL MANAGEMENT

1. Find out the working capital requirements of X Ltd. By operating cycle method taking
360 days in a year :
Sales 9000 units @ Rs. 100 p.u.
Material cost Rs. 50 p.u.
Labour cost Rs. 25 p.u.
Overheads Rs. 15 p.u.

Customers are given 45 days credit and 50 days credit is taken from suppliers. Raw
material for 30 days and finished goods for 15 days are kept in stock. Production
cycle period is 25 days.

146475

2. From the following information estimate the amount of working capital requirements:
Sales 50000 units @ Rs. 20 p.u.
Material Rs. 10 p.u.
Labour Rs. 4 p.u.
Overheads Rs. 3.5 p.u.

Customers are given 45 days credit and 60 days credit is taken form suppliers of raw
material. Raw material for 36 days and finished goods for 15 days are kept in stock.
Production cycle is 18 days. A cash balance equal to one third of average working
capital is kept for contingencies.

174913

3. From the following information taken from the budgets of Y Ltd. , prepare a
statement showing working capital requirements by operating cycle method:
(i) Annual sales are estimated at 100000 units @ Rs. 10 p.u.
(ii) Cost of production :
Material Rs. 5 p.u.
Wages Rs. 2 p.u.
Overheads Rs. 1.75 p.u.
(iii) Customers are given 60 days credit and 50 days credit is taken from
suppliers.
 WORKING CAPITAL MANAGEMENT
(iv) Raw material for 40 days and the finished goods for 15 days are kept in
stock.
(v) The production cycle period is 20 days.
(vi) A cash balance equal to Rs. 50000 is kept for contingencies.

256611

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

Raw material Rs. 52 p.u.
Direct labour Rs. 19.5 p.u.
Overheads Rs. 39 P.u.
-------------
Total cost 110.5 p.u,.
Profit 19.5 p.u.
Sales 130 p.u.

The following is the additional information available :

i. Average stock of raw material in stock : 1 month

ii. Average materials are in process : half a month
iii. Credit allowed by suppliers : one month
iv. Credit allowed to debtors : two months
v. Time lag in payment of wages : one and half week
vi. Time lag in payment of overheads : one month
vii. One fourth of sales are on cash basis.
viii. A cash balance equal to Rs. 120000 is required to be maintained.

You are required to prepare a statement showing the requirements of working capital
at an output of 70000 units.

971667

5. The cost sheet of ABC ltd. Provides :

Per unit
Raw materal 50
Labour 20
Overheads ( Rs. 10 dep.) 40
----
 WORKING CAPITAL MANAGEMENT
110
Profit 20
----
Sales 130
----
i. Average material are in stock for one month
ii. Average materials are in process for half a month
iii. Credit allowed by suppliers one month
iv. Credit allowed to debtors two months.
v. Avg. time lag in payment of wages 10 days
vi. Avg. time lag in payment of overheads 30 days.
vii. 25% of sales are on cash basis
viii. Cash balance is expected to be maintained at 100000.
ix. Finished goods remain in warehouse for one month.

You are required to calculate the amount of working capital to finance a level of
activity of 54000 units. The production is carried on evenly throughout the year.

1172500

Q. 6 XYZ Ltd. Sells its product on a gross profit of 20% on sales. The following
information is available:
Sales ( at 3 months credit ) 4000000
Raw material 1200000
Wages ( 15 days in arrear ) 960000
Mfg. exps.( one month in arrear ) 1200000
Admn. Exps.( one month in arrear ) 480000
Sales promotion Exps ( Half yearly in advance) 200000

The company enjoys one month credit from the suppliers and maintains two months stock
of raw material and one and half month of finished goods. Cash balance is maintained at
100000 and assume a 10% margin for contingencies. You are required to calculate the
amount of working capital.

1452000
 WORKING CAPITAL MANAGEMENT
Q. 7 You are required to determine the working capital requirements of ABC ltd. At an
output of 120000 units p.a.. The selling price is Rs. 10 p.u. The ratio of cost of sales is as
under :

Raw material 20%

Direct wages 40%
Overheads 30%

Raw materials for one month are kept in stock, while processing takes two months with
full material consumption and 50% in respect of conversion cost. Finished goods remain
in warehouse for one month. 25% of the sales are made against cash and rest at 3 months
credit. The suppliers provides one month credit and wages are paid 15 days in arrear. The
company requires minimum cash balance of Rs. 50000. Assuming 10% for contingencies,
prepare a statement of working capital.

475750

Q. 8 From the following prepare a statement showing the requirements of working capital

Analysis of one rupee sales :

Raw material .30
Labour .40
Overheads .20

The selling price per unit is 10. The additional information available are :
i) Raw materials are kept in stock for 3 weeks and finished goods for 2 weeks.
ii) Factory processing will take 3 weeks.
iii) Suppliers will give 5 weeks credit and customers will require 8 weeks credit.

Assume number of units as 100000.

213460
 WORKING CAPITAL MANAGEMENT

Q. 9 From the following information you are required to estimate the net working capital:
Raw Materials 400
Direct Labour 150
Overheads (Excluding Depreciation) 300
Total Cost 850
Additional Information :
Selling Price Rs. 1000 Per unit
Output 52000 Units per annum
Raw Material in Stock Average 4 Weeks
Work in Process :
(Assume 50 % completion stage with full material Average 2 weeks
consumption)
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.

11500000

Q. 10 While preparing a project report on behalf of a client you have collected the following
facts. Estimate the net working capital required for that projected. Add 10 % to your
computed figure to allow contingencies.
Amount for the year
Rs.
Estimated cost per unit of products
Raw Material
80
Direct Labour
30
Overheads (Exclusive of depreciation) 60
Total Cost 170
Additional Information :
Selling Price 200 Per unit
Level of Activity Production of 1,04,000 Units
Per annum
Raw Material in Stock : Average 4 Weeks
 WORKING CAPITAL MANAGEMENT
Work in Progress (Assume 50 % completion stage in Average 2 Weeks
respect of conversion costs)
Finished goods in stock Average 4 Weeks
Credit Allowed by Suppliers Average 4 Weeks
Credit Allowed in Debtors Average 8 Weeks
Lag in payment of wages Average 1.5 Weeks
Cash at bank is expected to be Rs. 25000
You may assume that production is carried on evenly throughout the year (52 weeks)
and wages and overheads accrue similarly. All sales are on credit basis only.

4966500

Q. 11 From the following information, make an assessment of working capital required by a

firm X and co. The firm has approached bank. A who have agreed to sanction the
working capital limits based on the data furnished by the firm retaining margins as
under :
Raw Materials 25 %
Stock in Process 33.33 %
Finished Goods 25 %
Bills 20 %
You are also required to work out the working capital limits proposed to be
sanctioned by the bank.
Estimates for 2006 Rs.
Monthly Sales 100000
Monthly Cost of Production 72000
(Including Raw Material Consumption)
Monthly Raw material Consumption 50000
Envisaged stocking pattern :
Raw Material - 1 Month
Stock in Process - 15 Days
Finished goods - 15 Days
While the firm may extend a credit of 1 month to its customers, it is hopeful of getting
15 days credit from its suppliers.

Q. 12 The management of Rajat Industries has called for a statement showing the working
capital needs to finance a level of activity of 104000 units of output for the year. The
cost structure for the company's product for the above mentioned activity level is
detailed below :
Cost Per Unit
(Rs.)
Raw Materials 20
Direct Labour 5
 WORKING CAPITAL MANAGEMENT
Over head (Including depreciation of 15
Rs. 5 Per unit)
40
Profit 10
Selling price 50
Additional Information :
1. Minimum desired balance is Rs. 20000.
2. Raw materials are held in stock, on an average for two months.
3. Work in Progress (Assume 50 % completion stage) will approximate to half a
month's production.
4. Finished goods remain in warehouse on an average for a month.
5. Suppliers of materials extend a month's credit and debtors are provided two
month's credit cash sales are 25 % of total sales.
6. There is a time lag in payment of wages of one month and half a month in case
of overheads.

From the above facts, you are required to -

i) Prepare a statement showing working capital needs.
ii) Determine the maximum working capital finance available under first two methods
suggested by Tandon Committee.

1688750
MPBF 126652 / 1604063

Q. 13 X and company is desirous to purchase a business and has consulted you on one point
on which you are asked to advise them is the average amount of working capital required in
the first year of its operations.
You are given the following estimates and are instructed to add 10% to your computed figure
to allow for contingencies :
Figures for the year
i) Amount blocked up for stocks 5000
ii) Stock of stores 8000
iii) Credit for inland sales 6 weeks 312000
iv) Credit for export sales 1 and half week 78000

56375
 WORKING CAPITAL MANAGEMENT

Q. 14 Compute the Working Capital needs of a borrower on the basis of the following
information :
Expected Level of Production 22000 Tons
Raw Materials inventory 4 weeks
Processing Period 2 weeks
Permanent Materials in process 200 Ton
Finished goods in stock 6 weeks
Credit allowed to customers 8 weeks
Expected ratio of :
i) Materials to sales price 72 %
ii) Wages & Overheads to sale price 22 %
Selling price per ton Rs. 3000

22736153

Q. 15 An engineering company is considering its working capital investment for the year
2020-21. The estimated fixed assets and current liabilities are expected to be Rs. 6.63
crore and Rs. 5.967 crore respectively. The following details are available:
Investment in
Working Capital Estimated Sales
current assets EBIT (In crores)
Policy (In crores)
(In crores)
Conservative 11.475 31.365 3.1365
Moderate 9.945 29.325 2.9325
Aggressive 6.63 25.50 2.55

You are required to calculate the following :

a. Rate of return on total assets
b. Net working capital position
c. Current assets to fixed assets ratio.

Q. 16 From the following information extracted from the books of a manufacturing

company, estimate the working capital required -
Period covered 365 days
Average period allowed by suppliers 16 days
Average total of debtors outstanding 2,40,000
Raw material consumption 22,00,000
Sales 80,00,000
Value of average stock maintained:
- Raw material 1,60,000
- Work in progress 1,75,000
- Finished goods 1,30,000
 WORKING CAPITAL MANAGEMENT
Q. 17 The following are the data available of company X taken from the accounting
records :
Average stock of raw material 1,80,000
Average stock of work in progress 1,00,000
Average stock of finished goods 54,000
Average balance of Debtors 1,50,000
Average balance of creditors 1,20,000
Average daily sales 2,000
Average daily cost of finished goods 1,800
Average daily consummation of Raw material 1,200
Average period of credit available from 100 days
suppliers
Based on the above data state:
a. Average period of Raw material holding in stores
b. Credit period allowed to customers
c. Average period for which finished goods remain in warehouse
d. Average period of conversion of raw material in finished goods.
e. Working capital cycle in days.

Q. 18 The Trading and Profit & Loss of a company is as under -

Trading and P&L a/c
(For the year ending 31st December 2019)
Particulars Amount Particulars Amount
To opening stock: By Sales 1,00,000
Raw Material 10,000
Work in progress 30,000
Finished goods 5,000
To purchase (credit) 35,000 By Closing stock:
Raw Material 11,000
Work in progress 30,500
Finished goods 8,500
To Wages 15,000
To Gross profit 55,000
1,50,000 1,50,000
To Administrative expenses 15,000 By Gross profit 55,000
To Selling and distribution 10,000
expenses
To Net Profit 30,000
55,000 55,000
Opening and closing debtors were Rs. 6,500 and Rs. 30,500 respectively, whereas
opening and closing creditors were Rs. 5,000 and 10,000 respectively.
Calculate period of operating cycle and working capital requirements.