WORKING CAPITAL

P.1 Sahil Ltd., had an 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 :-

Unit Cost
Cost elements
Rs.
Raw Materials ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. 30
Labour ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. 10
Overheads ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. 20
60
Profit per unit ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. 40
Selling price per unit ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. 100
The company has the practice of storing raw material for 4 weeks' requirements. Wages
and other expenses are paid after a lag of 2 weeks. Further, the debtors enjoy a credit
of 10 weeks and company gets a credit of 4 weeks 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.

P.2 M/s R Enterprise manufacturers and sells household goods to retailers. The following
are the budgeted figures for the year 2001:
Rs. Rs.
Sales 9,42,480
Raw Materials 3,77,040
Labour 1,85,160
Overheads 1,38,000 7,00,200
Profit 2,42,280
Additional Information :
(1) Raw Materials are carried in stock on an average for two months.
(2) Process period is one-half month.
(3) Finished goods are carried in stock on an average for one month.
(4) Normal credit period allowed to customers is three months.
(5) Suppliers of Raw Materials allow two months time.
(6) Time lag in payment of labour and overheads one month.
(7) Cash on hand and at bank estimated throughout the year Rs.20,000.
(8) The activity is spread over evenly during the year.
You are required to estimate the amount of Working Capital from the above
information.
The Working Capital is to be increased by 10% for contingencies.
Assume that all the materials are introduced for processing at a time and labour and
overheads are Incurred gradually.

P.3 Yogesh Cables Ltd. sells its goods in domestic as well in foreign market. Domestic
selling prices are 25% gross profit on sales and export prices are 10% below the
domestic prices; these prices are without taking depreciation into account in the cost.
 Following are the estimated annual figures for the next year.
Rs. Rs.
Sales - Domestic 1,80,000
Export 36,000 2,16,000
Material Consumption 54,000
Wages (time-lag one month) 42,000
Manufacturing Expenses (one month in arrears) 66,000
Depreciation 6,000
Administration expenses (one month in arrears) 60,000
Sales Promotion Expenses (Payable quarterly in advance) 30,000
Company's policy is to maintain one-month stock each of raw materials and finished
goods-required, and cash Rs.10,000.
Domestic customers are allowed credit of two months and foreign customers get credit
for three months from the date of sale. Two months credit facility is available from the
suppliers. Ascertain the funds required as Working Capital on above estimates, keeping
an additional 10 per cent as safety margin.

P.4 From the following information, estimate the working capital requirements and prepare
a forecast profit and loss account and balance sheet.
Rs.
Issued Capital ... ... ... ... ... … … … … … … … … … … … 1,36,500
5% Debentures (secured) ... ... ... ... ... … … … … … … … … … … … 36,000
Fixed Assets as on 1st January ... ... ... ... ... … … … … … … … … … … … 65,000
Production during the year is expected to be 60,000 units.
Expected ratios of cost to selling price are:
Raw Materials-60%, Direct wages-10%, overheads 20%: (Including 10% depreciation
on fixed assets at cost).
Raw Materials are expected to remain in stores for an average of two months before
issue to production. Each unit of production is expected to be in process for one month.
Finished goods will remain in warehouse awaiting dispatch to customers for
approximately three months.
Credit allowed by creditors is two months from the date of delivery of raw materials.
Credit allowed to debtors is three months from the date of dispatch. Selling price is
Rs.4 per unit. There is a regular production and sales cycle.

P.5 From the following details, prepare an estimate of the requirement of Working Capital:
Production ………………………… 60,000 Units
Selling Price per unit ………………………… Rs.5
Raw Materials ………………………… 60% of Selling Price
Direct Wages ………………………… 10% of Selling Price
Overheads ………………………… 20% of Selling Price
Materials in Hand ………………………… 2 months' requirements
Production time ………………………… 1 month
Finished Goods in Stores ………………………… 3 months
Credit for Material ………………………… 2 months
Credit allowed to Customers ………………………… 3 months
Average Cash Balance ………………………… Rs.20,000
Wages and overheads are paid at the beginning of the month following. In production
all the required materials are charged in the initial stage and wages and overheads
accrue evenly.

P.6 A pro forma cost sheet of a company provides the following particulars:-
 Amt. per
Element of Cost
unit Rs.
Raw material ……………………………………………… 80
Direct labour ……………………………………………… 30
Overheads ……………………………………………… 60
Total Cost ……………………………………………… 170
Profit ……………………………………………… 30
Selling price ……………………………………………… 200
The following further particulars are available:-
Raw materials are in stock on average one month. Materials are in process, on average,
half a month. Finished goods are in stock on average one month.
Credit allowed by suppliers is one month. Credit allowed to debtors is two months. Lag
in payment of wages is 1½ weeks. Lag in payment of overhead expenses is one month.
One-fourth of the output is sold against cash. Cash on hand at bank is expected to be
Rs.25,000.
You are required to prepare a statement showing the Working Capital needed to finance
a level of activity of 1,04,000 units of production.
You may assume that production is carried on evenly throughout the year, wages &
overheads accrue similarly & a time period of 4 weeks is equivalent to a month.

P.7 The Board of Directors of Nanak Engineering Company Private Ltd. requests you to
prepare a statement showing the Working Capital Requirement Forecast for a level of
activity of 1,56,000 units of production.
The following information is available for your calculations.
[A] Per Unit (Rs.)
Raw Material ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. 90
Direct Labour ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. 40
Overheads ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. 75
205
Profits ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. 60
Selling Price per unit ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. 265
[B]
(i) Raw materials are in stock on an average one month.
(ii) Materials are in process, on average 2 weeks.
(iii) Finished goods are in stock, on average one month.
(iv) Credit allowed by suppliers one month.
(v) Time lag in payment from debtors 2 months.
(vi) Lag in payment of wages 1½ weeks.
(vii) Lag in payment of overheads one month.
20% of the output is sold against cash. Cash in hand & at Bank is expected to be
Rs.60,000. It is to be assumed that production is carried on evenly throughout the year,
wages and overheads accrue similarly and a time period of 4 weeks is equivalent to a
month.

P.8 From the following information you are requested to prepare for submission to the
Board of Directors of AB Ltd., a forecast of working capital requirements. Also prepare
Forecast Profit and Loss A/c and Balance sheet.
Rs.
Share Capital 15,00,000
 10% 800 Debentures (Rs.250 each) 2,00,000
Fixed Assets 6,00,000
Bank Overdraft (sanctioned but not utilized) 1,00,000
Production during the previous year was 60,000 units. It is decided to maintain this
level of activity during the current year. The estimated ratios of cost to selling prices
are:
Materials 60%
Labour 10%
Overheads (including interest on debentures) 20%
Raw Materials will be in stock on an average for 3 months. Materials will be in process
(valued at cost of raw materials plus 50% of direct wages and overheads) on an average
for ½ a month. Finished goods will be in store on an average for 3 months. Credit
allowed by creditors is 2 months and to debtors is 3 months. Selling price is Rs.30 per
unit. There is a regular production and sales cycle.

U.1 A factory produces 96,000 units during the year and sells them for Rs.50 per unit. Cost
structure of a product is as follows:
Raw Materials 60%
Labour 15%
Overheads 10%
85%
Profit 15%
Selling Price 100%
The following additional information is available:
(1) The activities of purchasing, producing and selling occur evenly throughout the
year.
(2) Raw materials equivalent to 1 month's supply is stored in godown.
(3) The production process takes 1 month.
(4) Finished goods equal to three month's production are carried in stock.
(5) Debtors get 2 month's credit.
(6) Creditors allow 1½ month's credit.
(7) Time lag in payment of wages and overheads in ½ month.
(8) Cash and bank balance is to be maintained at 10% of the working capital.
(9) 10% of the sales are made at 10% above the normal selling price.
Draw a forecast of working capital requirements of the factory.
U.2 A Factory produces 84,000 units during the year and sells them @ Rs.50 per unit. Cost
structure of a product is as follows :
Raw Materials 55%
Labour 18%
Overheads 17%
90%
Profit 10%
Selling Price 100%
The following additional information is available :-
(1) The activities of purchasing, producing and selling occur evenly throughout the
year.
(2) Raw Materials equivalent to 1 ½ months supply is stored in godown.
(3) The production process takes 15 days.
(4) Finished goods equal to one month's production are carried in stock.
(5) Debtors get 1 month credit.
(6) Creditors allow 2 months credit.
(7) Time lag in payment of wages and overheads is 1 month.
(8) Cash & Bank Balance is to be maintained at 15% of the working capital.
(9) 25% of purchases are for cash.
Draw a forecast of working capital requirements of the factory.
U.3 Modern Carry on Ltd. manufactured and sold 1,200 T.V. sets in the year 2000. The
production cost per unit was as under
Rs.
Materials 5,000
Labour 2,000
Overheads 1,000
Total Cost 8,000
Profit 2,000
Selling Price 10,000
For the year 2001, 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,
i. Acceptance of Bills of Exchange for three months against 60% of Sales,
ii. 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.
U.4 From the following data, prepare a statement showing working capital requirements for
the year 2001 :
(a) Estimated activity / operations for the year 1,30,000 units [52 weeks].
(b) Stock of raw material 2 weeks and material in process for 2 weeks, 50% of wages
and overheads are incurred.
(c) Finished goods 2 weeks storage.
(d) Creditors 2 weeks.
(e) Debtors 4 weeks.
(f) Outstanding wages and overheads 2 weeks each.
(g) Selling price per unit at Rs.15.
(h) Analysis of cost per unit is as follows :-
i. Raw material 33 1/3% of sales
ii. Labour and Overheads in the ratio of 6 :4 per unit
iii. Profit is at Rs.5 per unit.
Assume that operations are evenly spread through the year.
U.5 The Management of German Collaboration Limited has called for a statement showing
the working capital needed to finance a level of activity of 3,00,000 units output for the
year. The cost structure for the company's product for the said activity level is detailed
below :-
Cost Per Unit
(Rs.)
Raw Material 20
Direct Labour 5
Overheads 15
Total Cost 40
Profit 10
Selling Price 50
(1) Past trend indicates that raw material are held in stock on an average for two
months.
(2) Work in Progress will approximate to half a month's production.
(3) Finished goods remain in warehouse on average for a month.
(4) Suppliers of materials extend a month's credit.
(5) Two month's credit is normally allowed to debtors.
(6) A minimum cash balance of Rs. 25,000 is expected to be maintained.
(7) The production pattern is assumed to be even during the year.
Prepare the statement of working capital requirements.
U.6 ABC Ltd. provides you with the following information with the request to prepare a
statement of working capital.
(2) Cost Records:
Total cost of product is Rs. 10 per unit of which 50% is accounted by materials,
overheads are 2/3 of the labour cost per unit.
(3) Sales Target (Annual):
Rs. Terms
Zone A - (Cost + 50%) 6,00,000 Cash
Zone B - (Cost + 25%) 5,00,000 One Month Credit
Zone C- (Cost + 20%) 1,92,000 TwoMonth Credit
(4) Other Details:
 (i) Stocks of both Raw Materials and Finished Goods are to be kept for two
months, while processing takes one month.
(ii) 20% of supplies of material are ensured on cash payment, 20% of supplies
are taken on advance payment for 15 days and remaining suppliers have
agreed to extend one month credit.
(5) Time lag in payment of wages and overhead is ½ month.
(6) Debtors are valued at cost.
(7) Cash Balance is always kept at 10% of Net Working Capital inclusive of Cash.
U.7 Finance Director of "Smart Ltd." intends to plan financial requirements for working
capital of the company for coming year 2002.
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
Over-heads 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.
U.8 Computers India Ltd. produced and sold 6,000 Laptops in 2001 and their cost structure
was as under:
Per Unit
Raw Material Rs. 12,000
Labour Rs. 9,000
Manufacturing Overheads Rs. 8,000
Administration and Selling Overheads Rs. 3,000
Profit 25% of Total Cost
In 2002 they plan to Manufacture 7,800 Laptops and sell 7,280 units. In the mean time,
it is estimated that:
(a) Raw material cost will go up by 10% p.a.
(b) Labour will reduce by 5% p.a.
(c) Manufacturing overheads will go up by 10% p.a.
(d) Administration and selling overheads per unit will remain unchanged.
(e) Selling price per unit will rise by 10% over last year
It is further informed that:
(a) Raw Material will remain in stores for 4 weeks before issue to production.
(b) Process period is 3 weeks.
 (c) 25% of sales, will be on cash basis, 25% of sale will be against Bills of Exchange
maturing in 8 weeks, balance will be sold at 4 weeks credit.
(d) 25% of Purchases are on cash basis. 25% of Purchases are from Japan and suppliers
are to be given advance payment of 6 weeks. Balance suppliers allow a credit of 6
weeks.
(e) Wages and Manufacturing Overheads remain outstanding for 2 weeks, whereas
Administration and Selling overheads are paid 2 weeks in advance.
(f) Cash and Bank Balance shall be maintained at Rs.75,000.
U.9 A proforma cost sheet of a Shrinath & Co. provides the following particulars:
Amt per unit
Element of Cost
(Rs.)
Raw Material 80
Direct Labour 30
Overheads 60
Total Cost 170
Profit 30
Selling price 200
The following further particulars are available:
Raw materials are in stock on average one month. Production period is two week. For
estimating work-in-progress consider 100% Material cost and 50% of labour and
overheads.
Finished goods are in stock on an average for one month.
Credit allowed by suppliers is one month. Credit allowed to debtors is two months.
Lag in payment of wages is 1.5 weeks. Lag in payment of overheads expenses is one
month.
One-fourth of the output is sold against cash. Cash on hand at bank is expected to be
Rs.10,000.
You are required to prepare a statement showing the Working Capital needed to finance
a level of activity of 2,000 units of production per week. Debtors to be considered at
selling price.
You may assume that production is carried on evenly throughout the year. Wages and
Overheads accrue similarly and a time period of 4 weeks is equivalent to a month.
(Month to be converted in weeks). All purchases are on credit basis.
U.10 D.K. Ltd. provides the following information:
(a) Projected annual material and labour cost of the company is Rs.7,20,000 and
Rs.5,40,000 respectively.
(b) Cost of sales consists of material, labour and overhead cost only.
(c) Production and sales take place evenly throughout the year.
(d) As per the credit policy of the company debtors (at selling price) at three months
credit will be Rs.4,50,000. However for working capital statement investment in
debtors is to be considered at cost.
(e) Raw materials are in stock on an average for one month.
(f) Finished goods are in stock on an average for half a month.
(g) Credit allowed by suppliers is two months.
(h) Materials remain in process (valued at cost of raw material plus 50% of labour and
overheads) on an average for one month,
(i) Company sales goods at 25% profit on cost,
 (j) Time lag in payment of wages and overheads is one month,
(k) Cash balance to be maintained at Rs.1,10,000.
(l) Margin of safety @ 10%.
You are required to prepare a statement showing the working capital requirement.
(Oct 2003)
U.11 From following details, prepare working capital estimate for 2004:
Raw Material Rs. 125 per unit
Fixed Wages Rs. 9,00,000 per annum
Variable Wages Rs. 40 per unit
Fixed Overheads Rs. 6,60,000 per annum
Variable Overheads Rs. 9 per unit
Level of activity of purchases production and sales 60,000 units per annum
Other information:
(1) Raw Material stock 1.5 months.
(2) Process time 1 month and to include fixed wages and overheads full, variable
wages and overheads 40%.
(3) Finished goods stock 1 month.
(4) M.R.P. of the product is arrived at by calculating 20% profit on sales price.
(5) 25% of the sales are to wholesalers giving them 10% discount. Credit given to
40% wholesalers two months against acceptance of bill and balance one month
credit.
(6) Balance sales to retailers. Half of it on cash basis by giving 2% discount, balance
half on one month credit.
(7) Cash required 15% of net working capital.
(8) For material purchases we accept bill for two months for 25% of quantity and for
balance we receive credit for 1.5 months.
(9) Fixed wages are paid ½ month in advance.
(10) Fixed overheads are paid 1 month in advance.
(11) Variable wages time lag is one month.
(12) Variable overheads time lag is half month.