Working Capital

Q.1) Kheliya Ltd is commencing a new project for manufacture of electric toys. The
following cost information has been ascertained for annual production of 60,000 units at full
capacity-
Particulars Amount per unit (Rs)
Raw materials 20
Direct labour 15
Manufacturing overheads 29
Total cost 64
Add: Profit 16
Selling price 80

. To assess the need of Working capital, the following additional information is available:-
1. Stock of raw materials- 3 months consumption
2. Credit allowed to debtors- 1.5 months
3. Credit allowed by creditors- 4 months
4. Lag in payment of wages- 1 month
5. Lag in payment of overheads- 0.5 month
6. Cash in hand and bank expected to be Rs 1,00,000.
.
Prepare a projected statement of Working capital requirement by using TOTAL APPROACH
and CASH COST APPROACH for the first year of operations.
Q.2): From the following information, prepare a statement showing working capital
requirement using Total Approach:

Budgeted Production 1,04,000 Units per annum

Element of Cost

Raw Material Rs. 80 per unit

Labour Rs. 30 per unit
Overheads Rs. 60 per unit
Total Cost Rs. 170 per unit
Profit Rs. 30 per unit
Selling Price Rs. 200 per unit
Time Lag 4 weeks
Raw Material holding Period
WIP holding Period 2 weeks
Finish Goods holding Period 4 weeks
Average Collection Period 8 weeks
Average Payment Period 4 weeks
Lag in Payment of Wages 1.5 weeks

It may be noted that production is carried on evenly during the year and wages. Expected
cash in hand Rs. 25,000. Degree of Completion for Raw Material 100% Labour 50%
Overheads 50% You may state your assumptions, if any.
Q.3) The following information has been extracted from the records of a company:
Product cost sheet (per unit):

Particulars ₹
Raw Material 45
Direct Labour 20
Overheads 40
Total 105
Profit 15
Selling Price 120

1. Raw material are in stock on an average for two months.

2. The materials are in progress on an average for one month.
3. The degree of completion is 50% in respect of all elements of cost.
4. Finished goods stock on an average is for one month.
5. Time lag in payment of wages and overheads is 1 ½ weeks.
6. Time lag in receipt of proceeds from debtors is 2 months.
7. Credit allowed by supplier is one month.
8. 20% of the output is sold against cash.
9. The company is poised for a manufacture of 1,44,000 units in the next year.
You are required to prepare a statement showing the Working Capital requirements of the
company.

Q.4) A newly formed company has applied to the commercial bank for the first time for
financing its working capital requirements. The following information is available about the
projections for the current year:

Elements of cost Per unit (Rs)

Raw material 40
Direct labour 15
Overheads 30
Total cost 85
Profit 15
Sales 100
Other information:
1. Raw material in stock : average 1 month consumption
2. Work in progress (completion stage: 50%), on an average half a month,
3. Finished goods in stock: on an average 1 month
4. Credit allowed by the suppliers is one month
5. Credit allowed to the debtors is 2 months.
6. Average time lag in payment of wages is 1.5 weeks and 4 weeks in overhead
expenses.
7. Cash in hand and at bank is desired to be maintained at Rs 50,000.
8. Budgeted Production 1,20,000 units
 9. All sales are on credit basis only.

Q.5) You are the accountant of Ganesha Ltd. The following information is made available to
you.
a) Budgeted production: 6,00,000 units
b) Details of stock holding: Raw material- 2 months, WIP- 0.5 month, Finished goods- 1
month
c) Credit granted to customers- 2 months, Credit availed from suppliers- 1 month
d) Minimum cash balance required at all times- Rs 25,000, safety margin of 10% will be
maintained
e) Cost structure of the product is as under:

Cost per unit Rs

Raw materials 10.00
Direct Labour 2.50
Overheads (of which depreciation is 0.25 paise) 7.50
Total costs 20.00
Profit margin 5.00
Selling price 25.00

From the above you are required to forecast the working capital requirements of the
company with CASH COST approach.

Q.6) From the following information, prepare a statement in columnar form showing the
working capital requirements with Cash Cost Approach and Total Approach.
Assuming that 1) Provision for Contingencies @10% (Total Approach) 2) Provision for
Contingencies is required at 10% working capital requirement, including that provision.(Cash
cost approach).

Budgeted sales : 26,000 Units

Analysis of Costs ₹

Raw Materials 3.00

Direct Labour 4.00
Overheads 2.00
Total Cost 9.00
Profit 1.00
Sales 10.00

It is estimated that Raw materials are carried in stock for three weeks and finished goods for
two weeks. Factory processing will take three weeks. Suppliers will give full five weeks
credit. Customers will require eight weeks credit.

Q.7) PQR Ltd is commencing a new project for manufacture of electric toys. The following
cost information has been ascertained for annual production of 50,000 units at full capacity-
Particulars Amount per unit (Rs)
Raw materials 150
Direct labour 100
Overheads 100
Total cost 350
Add: Profit 150
Selling price 500
. To assess the need of Working capital, the following additional information is available:-
1. Stock of raw materials- 3 months consumption , Stock of WIP - 2 months consumption
2. Credit allowable for debtors- 1.5 months
3. Credit allowable by creditors- 4 months
4. Lag in payment of wages- 1 month
5.Lag in payment of Overheads -0.5 Month
5. Cash in hand and bank expected to be Rs 1,00,000.
6..Degree of completion - Raw Material 60% ,Labour 40% ,Overheads 40%
Prepare statement of working capital requirement using Total Approach.

Q.8)The following information has been extracted from the records of a company:
Product cost sheet (per unit):

Particulars ₹
Raw Material 45
Direct Labour 20
Overheads 40
Total 105
Profit 15
Selling Price 120

1. Raw materials are in stock on an average for two months.

2. The materials are in progress on an average for one month.
3. The degree of completion is 50% in respect of all elements of cost.
4. Finished goods stock on an average is for one month.
5. Time lag in payment of wages and overheads is 1 ½ weeks.
6. Time lag in receipt of proceeds from debtors is 2 months.
7. Credit allowed by supplier is one month.
8. 20% of the output is sold against cash.
9. The company is poised for a manufacture of 1,00,000 units in the next year.
Q.9) XYZ Ltd is a pipe manufacturing Company. The following cost information has been
ascertained for annual production of 12,00,000 units at full capacity-
Particulars Amount per unit (Rs)
Raw materials 60
Direct labour 10
Manufacturing overheads 20
Selling and distribution overheads 4
Total cost 94
Add: Profit 26
Selling price 120
To assess the need of Working capital, the following additional information is available:-
1. Stock of raw materials- 3 months consumption
2. Credit allowable for debtors- 0.5 months
3. Credit allowable by creditors- 3 months
4. Lag in payment of wages- 1 month
5. Lag in payment of overheads- 0.5 month
6. Cash in hand and bank expected to be Rs 1,00,000.

Q.10) The following data relating to a consumer goods manufacturing firm is available for
the year ended 31st March.
Particulars No. of days
Raw materials in storage 30
Debtors collection period 30
Conversion process period 12
Finished goods storage period 45
Average credit period from suppliers 50
Advance payment to creditors 5
Total cash operating expenses ₹ 600 lakhs
60% of the total cash operating expenses are
due to raw material

Determine the average cash working capital needed by the firm at any point of time during
the year assuming that the firm wants to carry a cash balance of Rs 10 lacs at all the time.
Q.11) You are the accountant of ABC Ltd. The following information is made available to
you.
a) Budgeted production: 54,000 units
b) Details of stock holding: Raw material- 2 months, WIP- 0.5 month, Finished goods- 1
month
c) Credit granted to customers- 2 months, Credit availed from suppliers- 1 month
d) Minimum cash balance required at all times- Rs 25,000
e) Cost structure of the product is as under:
Cost per unit Rs
Raw materials 10.00
Direct Labour 2.50
Overheads (of which depreciation is₹ 0.25 paise) 7.50
Total costs 20.00
Profit margin 5.00
Selling price 25.00

From the above you are required to forecast the working capital requirements of the
company with CASH COST approach.

Q.12): STN Ltd is a readymade garment manufacturing company. Its production cycle
indicates that materials introduced in the beginning of the production phases, Wages and
overheads accrue evenly throughout the period of cycle. The following figures for the months
ending 31st March are given:

Budgeted Production 54000 Units per annum

Selling Price Rs. 200 per unit

Duration of production cycle 1 Month
Raw Material holding Period 2 Month's Consumption
Finish Goods holding Period 1 month
Average Collection Period 1.5 month
Average Payment Period 1 month
Wages are paid in the next month following the month of accrual. In the WIP 50% of wages
and overheads are supposed to be conversion cost. The ratio of cost to sales price is Raw
material 60%, Direct wages 10% ,and overheads 20%, Cash is to be held to the extent of
40% of Current Liabilities and safety margin of 15% will be maintained.

Calculate the amount of working capital for the company on cash cost basis.
.13) The following data relating to a consumer goods manufacturing firm is available for the
year ended 31st March.
Particulars No. of days
Raw materials in storage 145
Debtors collection period 68
Conversion process period 24
Finished goods storage period 93
Average credit period from suppliers 106
Advance payment to creditors 26
Total cash operating expenses Rs 979 lacs
60% of the total cash operating expenses are
due to raw material

Determine the average cash working capital needed by the firm at any point of time during
the year assuming that the firm wants to carry a cash balance of Rs 10 lacs at all the time.

Q.14) The following information is provided by Sarvavyapi Limited for the year ended 31st
March-
Particulars ₹
Raw Material Storage Period 55 days
Work-in-Progress Conversion Period 18 days
Finished Goods Storage Period 22 days
Debt Collection Period 45 days
Creditors Payment Period 60 days
Annual Operating Cost (including ₹21,00,000
Depreciation of ₹ 2,10,000)

You are required to calculate: (1 year = 360 days)

1.Opearing Cycle Period
2. Number of operating cycles in a year.
3.Amount of working capital required for the company on a cash cost basis.
4. The Company is a market leader in its product, there is virtually no competitor in the
market. Based on a market research, it is planning to discontinue sales on credit and deliver
products based on pre payments. Thereby, it can reduce its working capital requirement
substantially. What would be the reduction in working capital requirement due to such
decision?
15 ) Prepare a working capital forecast from the following information:
Issued share capital ₹4,00,000

12% Debentures ₹1,50,000

The fixed assets are valued at ₹3 Lakhs. Production during the previous year is 1 lakh units.
The same level of activity is intended to be maintained during the current year.

The expected ratios of cost to selling price are

Raw materials 50%
Direct Wages 10%
Overheads 25%

The raw materials ordinarily remain in stores for 2 months before production. Every unit of
production remains in process for 2 months. Finished goods remain in the warehouse for 4
months. Credit allowed by creditors is 3 months from the date of delivery of raw materials
and credit given to debtors is 3 months from the date of dispatch.
Selling price is ₹ 6 per unit. Both the production and sales are in a regular cycle.
Q16 ).MN Ltd. is commencing a new project for manufacture of electric toys. The following
cost information has been ascertained for annual production of 60,000 units at full capacity-

Particulars Amount per unit (₹)

Raw materials 20
Direct labour 15
Manufacturing overheads (Variable 25
₹15;Fixed ₹10)
Selling and Distribution overheads (variable 4
₹3, Fixed ₹1)
Total cost 64
Add: Profit 16
Selling price 80

In the first year of operations, expected production and sales are 40,000 units and 35,000
units respectively. To assess the need of working capital, the following additional information
is available:
Stock of raw materials – 3 months Lag in payment of wages – 1 month
consumption
Credit allowable for debtors – 1.5 months Lag in payment of overheads – 0.5 month
Credit allowable by creditors – 4 months Cash in hand and bank expected to be
₹60,000
Provision for contingencies is required at 10% of working capital requirement, including that
provision.
Prepare a projected statement of working capital requirement for the first year of operations.
Debtors are taken at cost.

Q17) Joe Ltd is a pipe manufacturing company. Its production cycle indicates that materials
are introduced in the beginning of the production cycle, wages and overheads accrue evenly
throughout the period of the cycle. Wages are paid in the next month following the month of
accrual. Work in process includes full units of raw materials used in the beginning of the
production process and 50% of the wages and overheads are supposed to be conversion costs.
Details of production process and the components of working capital are as follows:
Production 10,00,000 units p.a.
Duration of the production cycle 1 month
Raw materials inventory held 1 month consumption
Finished goods inventory held for 2 months
Credit allowed by the creditors 1 month
Credit given to debtors 2 months
Cost price of raw materials Rs 60 per unit
Direct wages Rs 10 per unit
Overheads Rs 20 per unit
Selling price of finished pipes Rs 100 per unit
You are required to calculate the amount of working capital requirement for the company BY
USING TOTAL APPROACH
Q.18) The following information has been extracted from the records of a company:

Product cost sheet (per unit):

Particulars Amount (₹)

Raw Materials 45
Direct Labour 35
Overheads 30
Total 110
Profit 10
Selling Price 120

1. Raw materials are in stock on an average for 2 months.

2. The materials are in progress on an average for ½ month.
3. The degree of completion is 50% in respect of all elements of cost.
4. Finished goods stock on an average is for 1 ½ month.
5. Time lag in payment of wages and overheads is 2 months.
6. Time lag in receipt of proceeds from debtors is 2 ½ months.
7. Credit allowed by supplier is one month.
8. 30% of the output is sold against cash. Cash balance is ₹2,00,000.
9. The company is poised for a manufacture of 1,52,000 units in the next year.
You are required to prepare a statement showing the Working Capital requirements of the
company as per Total approach.
Q.19)The Unlimited Pipelines Ltd is a pipe manufacturing company. Its production cycle
indicates that materials are introduced in the beginning of the production cycle, wages and
overheads accrue evenly throughout the period of the cycle. Wages are paid in the next month
following the month of accrual. Lag in payment of overheads is 1 month. Work in process
includes full units of raw materials used in the beginning of the production process and 50%
of the wages and overheads are supposed to be conversion costs. Details of production
process and the components of working capital are as follows:

Production 18,00,000 units p.a.

Duration of the production cycle 1.5 months
Raw materials inventory held 0.5 month consumption
Finished goods inventory held for 1.5 months
Credit allowed by the creditors 1.5 month
Credit given to debtors 2.5 months
Cost price of raw materials Rs 60 per unit
Direct wages Rs 10 per unit
Overheads Rs 20 per unit
Selling price of finished pipes Rs 100 per unit
You are required to calculate the amount of working capital requirement for the company BY
USING Total approach