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Working Capital Management

The document provides information to estimate working capital requirements for three different companies. For the first company, it lists production levels, costs, inventory levels, credit terms, and expenses to calculate gross working capital, net working capital, and length of the working capital cycle. For the second company, similar information is provided to estimate gross and net working capital and length of cycle. For the third company, production, cost, inventory, credit, and expense details are given to estimate the net working capital required, including a 10% contingency.

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Sajid Arif
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104 views3 pages

Working Capital Management

The document provides information to estimate working capital requirements for three different companies. For the first company, it lists production levels, costs, inventory levels, credit terms, and expenses to calculate gross working capital, net working capital, and length of the working capital cycle. For the second company, similar information is provided to estimate gross and net working capital and length of cycle. For the third company, production, cost, inventory, credit, and expense details are given to estimate the net working capital required, including a 10% contingency.

Uploaded by

Sajid Arif
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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WORKING CAPITAL MANAGEMENT

Q1. Working Capital Estimate

– Level of Activity = 1,040,000 units

– Selling Price = PKR 20 per unit

– Raw Material Cost = PKR 8 per unit

– Labor Cost = PKR 3 per unit

– Overhead Cost = PKR 6 per unit

– Raw Material in Stock = 4 weeks

– Processing Time = 2 weeks

– Finished Goods in stock = 3 weeks

– Credit received from customer is 8 weeks

– Credit received from supplier is 6 weeks

– Delay in payment of wages is 4 weeks

– Delay in payment of overheads is 5 weeks

– Prepaid Expenses = PKR 20,000

– Outstanding Expenses = PKR 50,000

– Contingency is 5% of Gross Working Capital

– Calculate GWC, NWC and length of the Working Capital Cycle?

Q2. The ABC Company has just put up a plant for the production of widgets. At the present moment
they are trying to estimate how much money they will require as working capital to run the factory.
They have gathered the following information about the widget industry:

Level of activity for the year is 200,000 units.

Selling Price per unit is Rs.12.

Raw Material Cost is 40% of selling price.

Labor Cost is 20% of selling price.


Overhead Cost is 20% of selling price.

Raw Material in store is 1 month

Work in process is half a month.

Finished Goods is one and a half-month.

Credit to customer is 2 months.

Credit from supplier is 1 month.

Lag in payment of wages is half a month.

Lag in payment of overheads is half a month.

Insurance expense of Rs. 50,000 was outstanding at the end of the year.

Rent was prepaid to the tune of Rs. 26,000.

Based on this information please make simple working capital estimation for gross working capital and
net working capital. Please take a 5% contingency on Gross Working Capital. Also calculate the length of
the working capital cycle.

Q3. While preparing a project on behalf of a client you have collected the following facts.
Estimate the net working capital required for that project. Add 10% to your computed figure to
allow contingencies:
Particulars     Amount per unit
Estimated cost per unit of prodution:  
Raw material 80
Direct labour 30
Overheads (exclusive of dep, Rs 10 per unit) 60
Total cash
cost     170
Additional information:
Selling price, Rs 200 per unit
Level of activity, 104,000 units of production per annum
Raw materials in stock, average 4 weeks
Work in progress (assume 50% completion stage in respect of conversion costs and 100%
completion in respect of materials) average 2 weeks
Finished goods in stock, average 4 weeks
Credit allowed by suppliers, average 4 weeks
Credit allowed to debtors, average 8 weeks
Lag in payment of wages, average 1.5 weeks
Cash at bank is expected to be, Rs 25,000

You may assume the production is carried on evenly throughout the year (52 weeks) and
wages and overheads accrue similarly. All sales are on credit basis only.

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