Numerical – Working Capital Management

1. Calculate the operating cycle in days from the following data:

Period Covered 365 days

Average period of credit allowed by 20 days
suppliers
Average debtors outstanding Rs. 450
Raw material consumption Rs. 4000
Total production cost Rs. 9500
Total cost of goods sold Rs. 12000
Sales for the year Rs. 16000
Average stock of Raw materials Rs. 350
Average stock of WIP Rs. 400
Average stock of Finished Goods Rs. 300

2. Calculate the gross and net operating cycle of ABC Ltd. For the data given
below for 2 years. Also interpret the increase/decrease in the net operating
cycle.
Particulars Year 1 Year 2
Average raw material consumed Rs. 8500 Rs. 7650
Average WIP Rs. 5950 Rs. 5100
Average Finished goods Rs. 8925 Rs. 6800
Purchases Rs. 40800 Rs. 38250
Cost of goods sold Rs. 59500 Rs. 51000
sales Rs. 68000 Rs. 57000
Debtors Rs. 13600 Rs. 14200
Creditors Rs. 6800 Rs. 5100
Assume 360 days in a year.

3. The Cost Sheet of Sun and Moon Limited is given below:

Particulars Per unit cost
Raw Material Rs. 40
Direct Labour Rs. 20
Overheads (including depreciation of Rs. 50
Rs. 10)
Total Cost Rs. 110
Profit Rs. 15
Selling Price Rs. 125
 Numerical – Working Capital Management

Additional Information:
 Average stock of raw material is for one month
 Average material in WIP is for half a month
 Credit allowed by suppliers is one month
 Credit allowed to debtors is one month
 Average time lag in payment of wages and overheads is 30 days.
 30% of sales are on cash basis and cash balance is expected to be Rs. 1 lac
 Finished Goods lie in warehouse for half a month
Prepare the working capital needed to finance a level of the activity of 45000 units
of output on cash cost basis. Production is carried on evenly throughout the year
and wages and overheads accrue similarly.
Assume that WIP is completed 100% in case of raw material and 50% in case of
wages and other expenses. Ignore depreciation for calculation of WIP. Also make a
contingency reserve of 10%.
4. PQR Ltd estimates to produce 12 lacs units of product X next year. Forecast
the working capital requirement on the basis of the estimated cost of one unit
of product X is given below:

Particulars Rs.
Raw Material 20
Direct Wages 5
Manufacturing Exp (including depreciation of Re. 10.5
0.5)
Administration Expenses 2.5
Selling and Distribution Expenses 2
Total Cost 40
Profit 10
Selling Price 50

Additional Information:
a. Company holds 2 months of raw material in stock
b. Half a month production remain in WIP
c. On an average, finished goods remain in stock for one month
 Numerical – Working Capital Management

d. Suppliers give a credit period of 2 months

e. 80% of purchases are on credit basis
f. 80% of sales are on credit basis
g. Debtors are given a credit period of 2.5 months
h. Minimum cash balance required is Rs. 50000
i. Sales promotion expenses totaling Rs. 240000 are paid quarterly in
advance
j. All other expenses including wages are paid 1 month in arrears
k. Safety margin 20%

5. ABC ltd plans to manufacture and sell 2000 units of an appliance per month
at a selling price of Rs. 500 each. The break up cost is given below:

Cost Component Rs.

Raw Materials 200
Packaging Materials 25
Direct Labour 75
Direct Expenses 100
Fixed Cost per unit 10
Total Cost 410
Profit 90
Selling Price 500

Additional information:
a. Raw materials are maintained for 45 Days
b. Packaging material ½ month
c. Finished Goods for 2 months
d. WIP for ¾ month
e. Credit sales are 75% of total sales and debtors are given a credit period of 1
month
f. Creditors of raw material and packaging material allow 15 days credit
g. Wages are paid 1 month in arrear
h. Lag in payment of overheads and expenses is ½ month
i. Cash Required is Rs. 100000
j. Contingency reserve is 15%
 Numerical – Working Capital Management

k. Assume a year of 12 months and 1 month of 30 days

Compute the working capital requirement on cash basis as well as total cost
basis.

6. Prepare an estimation of working capital for Moon Ltd. estimated cost per
unit of production Rs. 340 includes raw material Rs. 160, direct labour Rs.
60 and overheads (exclusive of depreciation) Rs. 120
Depreciation Rs. Rs. 20 per unit
Selling Price is Rs. 400 per unit
Level of activity p.a. 104000 units
Raw material in stock 4 weeks
WIP (assume 50% completion stage for raw material, labour and overheads)
2 weeks
Finished good in stock 4 weeks
Credit allowed by suppliers 4 weeks
Credit allowed to debtors 8 weeks
Lag in payment of wages 1.5 weeks
Cash at bank is expected to be Rs. 50000
All sales are on credit basis
Assume a year of 52 weeks
Add 10% for contingencies.

7. Prepare an estimation of working capital for Moon Ltd. estimated cost per
unit of production Rs. 170 includes Raw material Rs. 80, Direct labour Rs.
30 and overheads (exclusive of depreciation) Rs. 60

Selling Price is Rs. 200 per unit

Level of activity p.a. 52000 units
Raw material in stock 4 weeks
WIP (assume 50% completion stage for raw material, labour and overheads)
2 weeks
Finished goods in stock 4 weeks
Credit allowed by suppliers 4 weeks
Credit allowed to debtors 8 weeks
Lag in payment of wages 1.5 weeks
 Numerical – Working Capital Management

Cash at bank is expected to be Rs. 25000

All sales are on credit basis
Assume a year of 52 weeks
Add 10% f
 Numerical – Working Capital Management

or contigencies