WORKING CAPITAL
 
 
 
Question 1:
Hero Honda Ltd. had annual sales of 50,000 units at Rs 100 per unit. The Company
works for 50 weeks in the year. The cost details of the Company are as given below:
 
 
  Units Cost
Cost elements:- Rs.
Raw Materials 30
Labour 10
Overheads 20
Total Cost 60
Profit per unit 40
Selling price per  
unit 100
 
The company has the practice of storing raw materials for a week's requirements. The
wages and other expenses are paid after a lag of 2 weeks further the debtors enjoy a
credit of 4 weeks as also from suppliers . The processing time is 2 weeks and finished
goods inventory is maintained for 4 weeks. From the above information prepare a
Working Capital estimate, allowing for a 15% contingency.
 
Question 2:
 
The board of Directors or R .S. Jhaveri & Co. request you to prepare a statement
showing the requirements of working capital for a forecasted level of activity of
1,56,000 unit in the ensuing year (52 weeks) from the following information available
 
 
  Rs. Per units
Raw materials 90
Wages 40
Overheads 75
Total cost 205
Profit 60
Selling Price 265
Other Information:
 
a. Raw materials remain in stock for four weeks.
 
b. Materials remain in process for two weeks.

   
 
  
 
c. Finished goods remain in stock on an average of 4 weeks.
 
d. Credit available from suppliers is four weeks requirements of materials.
 
e. Time-lag in receipt from debtors is eight weeks.
 
f. Time-lag in payment 01 wages is one and half weeks.
 
g. Payment of overheads time-lag is four weeks.
 
h. Cash in hand and with Bank should always be Rs.60,OOO
 
i. Operations are expected to be distributed evenly throughout the year.
 
j. Of the total sales 20% are expected to be for cash
 
 
 
Question 3:
A factory produces 60,000 units during a year and sells them @ Rs.10 per unit.
Various costs in terms of percentages of selling price are
 
Raw Materials 60%
Overheads 10%
Overheads 20%
Total cost 90%
Profit 10%
Selling price 100%
The following additional information is available:
 
a. The activity of purchasing producing and selling occur even during the year.
 
b. Raw material equivalent to 1.5 months supply is stored in godown.
 
c. The production process takes 15 days,
 
d. Finished goods equal to 1 months production are carried in stock.
 
e. 50% of the total sales are on credit. Half the credit sales are made to those
customers who accept Bills of Exchange of 3 months period. Remaining debtors
enjoy 1.5 months credit,
f. Creditors allow 2 month's credit
 
g. Time lag in payment of wages and overheads is 1 month.
 
h. A cash balance of Rs.10,000 is kept for contingencies.
Prepare a forecast of working capital requirements of the factory.

 
  
 
 
Question 4:
 
The Board of Directors of M/s Ramkrishna Ltd. approach you and ask you to advise
them as to the working capital requirements of their business. They furnish you the
following information :
 
 
Cost of raw materials Rs. 15 per unit
Wages Rs.6 per unit
Overheads Rs. 10,000 per month
Selling price Rs. 55 per month
Output & Sales 1,000 units per month
You are also informed that:
A. The stock of raw material and finished goods are carried for one month and two
 
months respectively after purchases and production
 
B. Debtors are allowed credit for 45 days.
 
C. The company keeps cash reserve to pay two months wages and overheads.
 
D. Time lag for payment of wages is one month.
 
E. Raw materials are purchased uniformly every day and payment for the them
become due at the end of the month in which the goods are received.
F. Safety margin required is 10 %.
 
 
 
Question 5:
 
From the following data provided by M/s. Alpha Ltd. estimate working capital
requirements for the year ended 31st March, 2019.
1. Estimated activity/operations for the year 2, 60,000 units (52 weeks).
 
2. Raw material remains in stock for 2 weeks and production cycle takes 2 weeks.
 
3. Finished Goods remaining in stock for 2 weeks
 
4. 2 weeks credit is allowed by suppliers
 
5. 4 weeks credit is allowed to Debtors
 
6. Time lag in payment of wages and overheads is 2 weeks each.
 
7. Cash & Bank Balance to be maintained Rs. 25,000.
 
8. Selling price per unit is Rs. 15.
 
9. Analysis to cost per unit as follows:
 
a. Raw material 33 1/3 % of sales.
 
b. Labour and overheads in the ratio of 6:4 per unit.

 
  
 
 
c. Profit is at Rs. 5 per unit.
 
Assume that operations are evenly spread throughout the year; Wages and Overheads
accrued similarly. Manufacturing process required feeding of material fully at the
beginning. Degree of world. In-progress is 50%. Debtors ate to be estimated at selling
price.
 
 
Question 6:
 
A Ltd. manufactured and sold 30,000 machines in the year 2008 at 100% capacity.
Following information is available for the same year.
Materials Rs. 7, 50, 00,000,
Labour Rs. 3, 00, 00,000,
Sales Rs.15, 00, 00,000
Gross Profit 20% on Sales
 
Due to slow down in economy the company has decided to reduce its production to
 
50% of its Capacity during the year 2019. It
is estimated that:
a. Price of Raw material will be reduced by 10% per unit.
 
b. Wages will be reduced by 20% per unit.
 
c. Overheads will be increased by 10% per unit.
 
d. Selling price per unit to be estimated to maintain profit on sales at 20%.
 
 
Additional information’s for the year 2009.
 
1. Raw material will remain in stock for one month.
 
2. Finished goods will remain in warehouse for 2 months.
 
3. Customers (at selling price) will enjoy one month credit.
 
4. Suppliers will allow 2 months credit.
 
5. Time lag in payment of wages and overheads will be 1 month.
 
6. Processing period one month.
 
7. Cash and bank balance should be Rs. 30, 00,000.
 
You are required to forecast working capital required / requirement for the year 2019.
 
 
 

 
  
 
Question 7:
 
D. K. Ltd. provides the following information:
 
1. Projected Annual Material & Labour cost of Co. is Rs. 7,20,000 &
Rs.5,40,000 respectively.
2. Cost of Sales consists to Material, Labour and Overhead Cost only.
 
3. Production and Sales take place evenly throughout the year.
 
4. As per The credit policy of the Co. Debtors (at selling price) at three months credit
will be Rs. 4,50,000/- However for working capital statement Investment in Debtors
is to considered at cost.
5. Raw Materials are in stock on an average for one month,
 
6. Finished goods are in stock on an average for half a month,
 
7. Credit allowed by suppliers is two months.
 
8. Materials remain in process (valued at cost of Raw Material plus 50% of Labour
and Overheads) on an average for one month,
9. Company sales goods at 25% profit on cost,
 
10. Time lag in payment of wages and overheads in one month.
 
11. Cash balance to be maintained at Rs. 1, 10,000.
 
12. Margin of safety @10%,
 
You are required to prepare a statement showing the Working Capital Requirement.
 
 
Question 8:
 
Aryan ceramics is going to produce and sell 5,000 units per month in the year
 
2004.The material required per unit is Rs. 550/- The direct Labour is Rs.
12,00,000/- per month, the Expenses are Rs. 1,26,00.000/. Per annum. The sale
price is fixed by calculating profit at 20% on sale price.
Calculate requirement of working capital for 2004 by taking in to consideration
 
following information:
 
1. Stock of raw material will be two months.
 
2. Process time is one month.
 
3. Stock of finished goods will be 1.5 months,
 
4. Credit allowed to 50% customers two months on acceptance of bills and balance
 
50% customers given one month credit.
 
 
 
 
  
 
 
5. 25% of expenses are paid one month in advance and-balance 75% is paid after one
month.
6. Time lag in payment of wages is one month.
 
7. 20% of material is purchased on cash basis and suppliers of 80% material give 1.5
months credit.
8. Cash required is 15% of net working capital.
 
 
Question 9:
 
Modern Carry on Ltd. manufactured and sold 1,200 T.V. sets in the year 2019. The
production cost per unit was as under:
Material 5,000
 
Labour 2,000
 
Overheads 1,000
 
Total 8,000
 
Gross Profit 2,000
 
Selling Price 10,000
 
For the year 2020, it is estimated that
 
1. The output and sales will be 1,800 T.V. sets.
 
2. Price of materials will rise by 20%.
 
3. Wages rate will rise by 25%.
 
4. Overheads will increase by 50%.
 
5. Selling price per unit will be Rs. 12,000.
It is also estimated that -
a. Raw Materials remain in stock for half month before issue to production.
 
b. Finished Goods will remain in godown for one month before sale.
 
c. All sales will be on credit and credit allowed to customers will be as follows
 
1. Acceptance of Bills of Exchange for three months against 60% of Sales.
 
2. 40% of sales one month credit.
 
d. 60% for Raw Materials requirements will be obtained from the suppliers from
 
Japan by making three months advance payments.
 
e. Wages and Overheads are paid one month in Arrears
f. Materials will be in process (valued at cost of Raw Material plus 50% of Labour and
 
Overheads) on an average for half month.
 

 
  
 
g. Cash on hand and with Bank should always be Rs. 50,000.
 
You are required to forecast Working Capital Requirements of the company.
 
 
Question 10:
 
Power Link Ltd. furnishes the following information and requests you lo prepare
statement showing the requirements of working capital for the year 2020.
Budget for 2020
 
Production Capacity for the year 20,000 units
 
Production 90%
 
Cost Structure:
 
Crude Material Rs. 30 per unit.
Other Direct Material Rs. 20 per unit.
Wages Rs. 25 per unit
Overhead Fixed p.m. Rs. 9,000 and Rs. 15 Variable per
unit
 
Profit 20% on sales.
 
Other Information :
1. Crude material remains in stock for 2 months.
 
2. Other direct material remains in stock for 1 month.
 
3. Finished goods remain, in stock for 2 months (to be valued at direct cost).
 
4. The production process takes 1 month. W.I.P valuation to be made as follows:
crude material plus direct material at cost; plus 50% of wages and variable
overheads.
5. Time lag in payment of wages 1 month and variable overheads half month.
 
6. Fixed overheads payable quarterly in advance.
 
7. Crude material purchased from suppliers against advance payment of two months
and other direct material suppliers allow credit of 1 month.
8. Credit allowed to customers as under : (Valued at sales price)
 
a. 50% of invoice price against acceptance of bill for 4 months.
 
b. 25% of invoice price time lag two months.
 
9. Bank balance to be maintained at Rs. 50,000.
 
10. Production and sales take place evenly throughout the year.
 
 
 

Question 11:
 
Finance Director of "Smart Ltd." intends to plan financial requirements for working
capital of the company for coming year 2019-
The share capital of the company is Rs. 10,00,000. The company also has issued 10%
Debentures of Rs. 1,50,000.
The Fixed Assets of the company are valued at Rs. 3,75,000.
 
Production in the previous year was 15,000 units. It is expected that during coming
year it will be 30,000 units. The estimated cost-sheet is given below:
Particulars Rs. (per unit)
 
Raw Material 60
 
Direct Wages 10
 
Overheads 20
 
Profit 10
 
Selling Price 100
 
You are further informed that
 
1. Raw material will be in stock for half month.
2. Production cycle will take one month.
 
3. Finished goods will remain in godown for one month.
 
4. All sales will be on credit basis.
 
5. Suppliers will allow three months credit.
 
6. Customers will enjoy four months credit.
 
7. Production and sales will be evenly spread throughout the year.
 
8. Time lag in payment of wages and overhead will be half month.
You are required to prepare –
a. The estimate of Working Capital requirement.
 
b. Projected Profit and Loss Account; for coming year.
 
c. Projected Balance Sheet at the end of coming year, in order to find out cash
requirement.

Question 12:
 
Following information is forecasted by the CS Limited for the year ending 31st March,
 
2020.
 
Particulars Balance as at Balance as at
   
1st April, 31st March,
Raw material 45,000 65,356
Work-in-Progress 35,000 51,300
Finished goods 60,181 70,175
Debtors 1,12,123 1 ,35,000
Creditors 50,079 70,469
Annual purchases of caw material (all credit) 4,00,000
Annual cost of production 7,50,000
Annual cost of goods sold 9,15,000
Annual operating cost 9,50,000
Annual sales (all credit) 11,00,000
You may take one year as equal to 365 days.
 
You are required to calculate:
 
1. Net operating cycle period
 
2. Number of operating cycles in the year
 
3. Amount of working capital requirement.