From the following information , you are required to estimate the

Net working capital : COST PER UNIT(RS)

Raw materials 200
Direct lab our 100
overhead 250
TOTAL 550
Estimated data for the forthcoming period is given as under :
Raw materials in stock average 6 weeks
W.I.P (assume 50% completion stage with
full material consumption ) 2 weeks
Finished goods in stock 4 weeks
Credit allowed by suppliers 4 weeks
Credit allowed to debtors 6 weeks
Cash at bank expected to be Rs. 75,000/-
Selling price Rs. 800/- per unit
Output 52,000 units
Assume that production is sustained at an even pace during 52 weeks
of the year.
All sales are on credit basis .

Nature of Assets / Liabilities basis of calculation

amount
A. Current Assets
i. Raw materials stock 52,000 x 200 x 6/52
12,00,000
ii. Work in progress :
( a ) Raw materials 52,000 x 200 x 2/52 4,00,000
( b ) Direct lab our & OH
( 50% completion ) 52,000 x 175 x 2/52
3,50,000
iii. Finished goods stock 52,000 x 550 x 4/52
22,00,000
iv. Debtors 52,000 x 550 x 6 / 52
33,00,000
v. Cash at bank
75,000
TOTAL 75,25,000
B. Current liabilities
 Creditors 52,000 x 200 x 4/52
8,00,000
NET WORKING CAPITAL A–B
67,25,000

2. X & CO. is desirous to purchase a business and has consulted you . You are
asked to advise
Them regarding the average amount of working capital required in the first year.
You are
Given the following estimates : AMOUNT FOR
THE YEAR
( I ) average amount blocked for stocks : ( Rs )
stock of finished goods 5,000
stock of stores , materials etc 8,000
( ii ) average credit given :
inland sales 6 weeks credit 3,12,000
export sales 1 & ½ weeks credit
78,000
( iii ) average time lag in payment of wages and other :
Wages 1 & ½ weeks
2,60,000
stock & materials 1 & ½ months
48,000
rent , royalties etc. 6 months
10,000
clerical staff ½ months
62,400
manager ½ months
4,800
miscellaneous expenses 1 & ½ months
48,000
( iv ) payment in advance :
sundry expenses ( paid quarterly in advance ) 8,000

( A ) Current assets :
( I ) stock of finished goods
5,000
 ( ii ) stock of stores , materials etc
8,000
( iii ) debtors :
( a ) Inland : 3,12,000 x 6 / 52 weeks
36,000
( b ) export : 78,000 x 1.5 / 52 weeks
2250
( Iv) advance payment of s. expenses : 8000 x 3 months/ 12
months 2,000
TOTAL INVESTMENT IN CURRENT ASSETS
53,250
( B ) CURRENT LIABILITIES :
i. Wages : 2,60,000 x 1.5 / 52 weeks
7,500
ii. Stocks , materials : 48,000 x 1.5 / 12 months
6,000
iii. Rent , royalties : 10,000 x 6 /12 months
5,000
iv. Clerical staff : 62,400 x 0.5 / 12 months
2,600
v. Manager : 4,800 x 0.5 / 12 months
200
vi. Misc. expenses : 48,000 x 1.5 / 12 months
6,000
TOTAL ESTIMATES OF CURRENT LIABILITIES
27,300
NET WORKING CAPITAL ( A – B )

25,950

EOQ QUESTIONS
XYZ Company buys 75,000 glass bottles per year. Price of
each
Bottle is Rs. 0.90 . Cost of purchase is Rs. 100/- per order .
Cost
Of holding one bottle per year is Rs. 0.20. bank interest is
15% including a charge for taxes and insurances.

EXAMPLE – 3 :
A unit manufacturing electronics meters consumes 20,000
units
Of moulded steel boxes every month. The material is
consumed
At an uniform rate during the month. The cost of acquiring the
Inputs is Rs.100 per unit and the carrying cost for the firm is
27.5 % on an average. The acquisition cost is likely to
remain constant in the near future. The cost of placing an
order is Rs.50,000/- per order. Compute the optimal
inventory for the year ahead using EOQ model.

Ans. 2 Annual usage = 75,000 units

Cost of placing and receiving one order = Rs. 100/-
Cost of bottle = Rs. 0.90 per bottle
Annual carrying cost of one bottle = Rs. 0.20 per
bottle.
Inventory carrying cost = 0.20 + ( 0.90 x 0.15 ) = Rs.
0.335
EOQ = √ 2 A O / C C
= √ ( 2 X 75,000 X 100 ) / O.335
= 6691.5 UNITS

Ans. 3 Annual Demand ( A ) = 20000 x 12 =

2,40,000
Ordering Cost ( O ) = Rs. 50,000/-
Carrying cost ( CC ) = Rs. 27.5 ( 27.5% of acquisition
cost of
Rs. 100/- )
EOQ = √ 2 X 2,40,000 X 50,000 / 27.5
= 29,542 UNITS