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Working Capital Management

1. The production of Quick Profit Ltd. is 5,20,000 units p.a. Due to power crisis , the
company can operate at 80% of the capacity level. You are asked to ascertain the
working capital requirement at the current level of operation. Add 10% to your
computed figure, to allowfor contingencies.
Other information’s:
a) Selling price RS. 20 per unit
b) Elements of cost per unit (% of selling price): raw material- 40%,labour –
30%,Budgeted Overhead – RS. 32,000 per week(overhead includes a depreciation of
Rs. 8,000 per week)
c) Planned stock will include 24,000 units of finished goods.
d) Time lag information: Raw material in stock – 3 weeks ;material will stay in process –
2 weeks, credit allowed to debtors – 5 weeks ; credit allowed to creditors – 1 month;
lag in payment of wages of OH – ½ month. 25% of sales may be consideredto be for
cash.
Assume that production is carried on evenly throughout the year and wages and
overhead accrue similarly.
A time period of 52 weeks is equivalent to a year and a month comprises 4 weeks.

2. From the following data compute the money block period of working capital:
(RS. in ‘000)
Stock : Raw material 20
W.I.P 14
Finished goods 21
Purchases 96
Cost of goods sold 140
Sales 160
Debtors 32
Creditors 16

1 year = 360 days

3. Mr. Roy wants to start a new trading business and gives the following information:
a) The projected annual sales – RS.60,00,000
b) He has estimated fixed expenses Rs. 10,000 per month and variable expenses
equal totwo per cent of turnover.
c) % of gross profit on cost of purchase will be 25%.
d) Average expected credit period allowed to debtors – 1 month.
e) Average expected credit period from suppliers – 15 days.
f) He expected to turnover his stock 5 times in a year.
g) Average cash holding – 1 month’s expenses.

you are required to forecast his working capital requirement.

4. A manufacturing company has a capacity to produce 60,000 units p.a. The cost
structure atthat capacity and selling price p.u. are given below :

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Material Rs. 5
Labour Rs. 2
Overhead Rs. 5 (60% variable; of the fixed overhead
Rs. 30,000 represents depriciation)
--------
RS. 12
Profit Rs. 3

Selling price Rs. 15

The other details are-
. Raw material storage period – 2 months; processing time -1 month and finished goods
instore – 1 month.
. Debtors and creditors turnover are 6 and 12 times in a year respectively.
.lag in payment of overhead is ½ month.

Assuming that the company will be able to utilize 80% of its capaci

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the opportunity to learn from the best. Centres – Bhawanipore- Girish Park – Bangur-
Tollygunj- Howrah.