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Problem:1

The following are the estimates furnished to you by Wcap Limited.

1. Estimated output 60000 units.

2. Cost price Rs 90 consisting of raw material, labor cost and overheads

in the ratio of 3:2:1.

3. Raw material and finished goods will remain in stock for 20 days and

10 days respectively.

4. Work in process will be for on an average 15 days, for which labor cost

and overheads are to be considered at 60% and 50% completion stage

respectively.

5. Goods are sold at one month credit.

6. 20% purchases are made by advance payment of one month, 20% are

on cash basis and the remaining purchases are on 2months credit.

7. Wages are paid on monthly basis.

8. Overheads are paid with 20 days time lag.

9. The management wants to maintain minimum cash balance of Rs

1,00,000.

Prepare a statement showing estimated working

capital.

Success Academy For MBA Classes : 9011202759 By-

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Problem:2

A proforma cost sheet of a company provides the following particulars.

Elements of cost Amount per unit

Raw Material 80

Direct Labor 30

Overheads 60

Total cost 170

Profit 30

Selling price 200

The following further particulars are available.

Raw materials are in stock of one month.

Credit allowed by suppliers is one month.

Credit allowed to customers is two months.

Lag in payment of wages 1.5 weeks.

Lag in payment of overheads one month.

Materials are in process for an average of half month.

Finished goods are in stock for an average of one month.


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of output is sold against cash.

Cash in hand and at bank is expected to be 25,000. You are requested to

prepare a statement showing the working capital needed to finance level of

activity of 1,04,000 units of product.

You may assume that production is carried on evenly throughout the year.

Wages and overheads accrue similarly and a period of 4 weeks is equivalent

to a month.

Problem:3

Calculate the working capital from the following particulars.

(1)Annual Expenses

Wages Rs 52,000

Stores and materials Rs 9,600

Office salaries Rs 12,480

Rent Rs 2,000

Other expenses Rs 9,600

(2)Average amount of stock to be maintained

Finished goods stock Rs 1000

Materials/stores Rs 1600

(3)Expenses paid in advance

(quarterly advance) Rs1600p.a


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(4)Annual sales

Home market Rs62000

Foreign market Rs15600

(5)Lag in payment of

Wages 1.5 weeks

Stores and materials 1.5months

Office salaries 0.5months

Rent 6months

Other expenses 1.5months

Problem:4

Raju brothers pvt. Ltd. Sells goods on a gross profit of 25%. Depreciation

is considered in cost of production. The following are the annual firure

given to you.

Sales (two months credit) Rs.1800000

Materials consumed(one month credit) Rs. 450000

Wages paid(1 month lag in payment) Rs.360000

Administration exp.(1month lag in payment) Rs.120000


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Sales promotion exp.(paid quarterly in advance) Rs.60000

Income tax payable in 4 equal installments of Rs.150000

which one false in the next year

cash manu. Exp.(1 month lag in payment) Rs.480000

The company keeps 1 months stock each of raw materials and

finished goods. It also keeps rs. 100000 in cash. You are required to

estimate the working capital requarements of the company on cash basis

assuming 15% safety margin.


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Problem:5

On 1st January 1994, the board of directors of jain Ltd wish to know the

amount of working capital that will be required to meet the programme of

activity they have planned for the year. From the following information

available, prepare:

A working capital requirement forecast

An estimated profit and loss account and balance sheet at the end of the

year

1) Issued and paid up share capital Rs 2,00,000.

2) 5% debentures (secures on assets)Rs 50,000

3) Fixed assets valued at Rs 1,25,000 on 31st December 1993.

4) Production during the previous year was 60,000 units, it is planned

that this level of activity should be maintained during the present

year.

5) The expected ratios of cost of selling price are : raw material

60%,direct wages 10%, and overheads 20%.

6) Raw materials are expected to remain in stores for an average of tow

months before issue the production.

7) Each unit of production is expected to be in process for one month

(assume that full units of raw material required at the beginning of

manufacturing other conversion cost are 50%)

8) Finished goods will stay in warehouse for approximately 3 months.

9) Creditors allow credit for two months from the date of delivery of the

materials.

10) Credit allowed to debtors is three months from the date of

dispatch.


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11) Selling price per unit is Rs 5

12) There is a regular production and sales cycle.

Problem 6:

On 1.1.87, board of XYZ Ltd. planned a program for the year. They desire toknow the amount of working capital required for the same. From thefollowing information, prepare an estimate of working capital required and aforecasted Profit and Loss Account and Balance Sheet neglecting

depreciation on fixed assets.Issued share capital Rs.4, 00,000

8% Debentures Rs.1, 00,000

Fixed Assets on 1.1.87 Rs.2, 50,000

Production during 1986 was 1, 20,000 and it is proposed to maintain thesame during 1987.The expected ratios of cost to selling price are:

Raw Material 60%

Direct Wages 10%

Overheads 20%

1. Raw Material are expected top remain in stores for an average of 2months before issue to production.

2. Each unit of production is expected to be in process for 1 month.


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3. Finished goods will stay in warehouse awaiting despatch to customersfor approximately 3 months.

4. Credit allowed by creditors is 2 months from the date of delivery ofraw materials.

5. Credit given to debtors is 3 months from the date of despatch.

6. Selling price is Rs.5/- per unit.

7. Sales and production follow a consistent pattern.

Problem 7:

The management of Royal Industries has called for a statement showing

working capital needs to finance a level of activity of 1, 80,000 units ofoutput for the year. The cost structure for the companys product for theabove mentioned activity level is detailed below.

Cost per Unit(Rs.)

Raw materials 20

Direct Labour 5

Overheads (including depreciation of Rs.5 per unit) 15

40

Profit 10

Selling Price 50

Additional Information:


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(a) Minimum desired cash balance is Rs.20,000

(b) Raw materials are held in stock, on an average for two months.

(c) Work in progress (assume 50% completion stages) will approximateto half a months production.

(d) Finished goods remain in warehouse on an average for a month.

(e) Suppliers of materials extend a months credit, Cash sales are 25% oftotal sales.

(f) There is a time-lag in payment of wages of month and half a month incase of overheads.

From the above facts, you are required to

(i) Prepare a statement showing working capital needs.

(ii) Determine the maximum working capital finance available underfirst two methods suggested by Tandon Committee

Problem 8:

Estimate working capital required from the data of Delhi Ltd.

Cost price per unit-

Raw material RS.40

Labour Rs.10

Overheads Rs.30

Projected sales 75000 units at Rs.100 per unit

Debtors pay after 10weeks


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Creditors are paid after 4weeks

Raw material in stock 6weeks

Finished stock 8weeks

Production Processing time 4weeks

Wages are paid once in 4weeks

Contingency 10%of working capital

Assume Cash and Bank Balance Rs.1,87,500

Problem 9 :

You are required to calculate average amount of working capital from

the following information.

Estimates for year Rs.

(a)Average amount locked up for-

Stock of finished goods Rs.5,000

Stock of stores/materials Rs.8,000

(b)Average Credit given-

Inland sales -6 weeks credit 3,12,000

Export sales-1.5 weeks credit 78,000


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(c)Lag in payment of-

Wages-1.5 weeks 2,60,000

Stores/materials etc.-1.5 months 48,000

Rent, Royalties etc.-6 months 10,000

Staff Salary-1/2 month 4,800

Miscellaneous Expenses-1.5 months 48,000

(d)Payment in advance-

Sundry Expenses (Paid Quarterly in advance) 8,000

Problem 11:

From the following details, prepare an estimate of the requirement

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


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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 stages and wages and overheads accrue evenly.


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Problem 12:

Prepare a statement showing estimated amount of working capital from the

following information of VORLAP Limited, Pune:

Expected sales level: 24,000 units @ Rs. 150 per unit.

Cost of the product (per unit) : Raw ,aterial-Rs.60, Labour cost- Rs.40,

Variable overheads-Rs.20.

Raw material and finished goods will stay in stock for 10 days and 20

days res.

The material will stay in process for 15 days.

The labour cost and overheads may be considered at 60% completion

stage for work in Progress.

The purchases are made with two months credit; while the goods are

sold with one and a half month credit.

Labourers are paid on every 10th day of the next month.

Overheads are paid with one month time lag.

The company wants to maintain Rs.1, 00,000 for contingencies.


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Problem 13:

Prepare a statement showing estimated amount of working capital from the

following information of WORCAP Limited, Pune:

Expected sales level 1, 04,000 units @ Rs. 25 per unit.

Cost of the product (per unit): Raw material-Rs.8, Labour- Rs.6,

Overheads -Rs.3.


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Raw material and finished goods will remain in stock for 2 weeks and 3

weeks res.

The material will remain in process for 15 days.

The work-in-progress shall be valued at 60% and 40% in completion

stage of Labour cost and Variable overheads res. Fixed overhead will

be ignored for this situation.

The purchases are made with 2 months credit while the goods are sold

with one and a half months credit.

70% of the Labour cost is paid on every 10th day of the next month

while remaining overheads are paid on weekly basis.

Overheads are paid with 1 month time lag.

Add 10% of your computation for contingencies.

Problem14:


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From the following detail. You are required to make an assessment of

the average amount of working capital requirement of Fine Drinks

Limited.

Average period

Estimate for frist

Of credit year

Rs.

Purchase of material 6 weeks26,00,000

Wages 1/2weeks

19,50,000

Overheads Rent, rates etc. 6 months

1,00,000

Salaries 1 month

8,00,000

Other overheads 2months

7,50,000

Sales cash

2,00,000

Credit sales 2 months

60,00,000

Average amount of stock and

Work in progress

4,00,000

Average amount of undrawn profit

3,00,000


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It is to be assumed that all expenses and income were

made at even rate for the year.

Problem15:

Following annual firures relate to XYZ & co.

Rs.

Sales (at two months credit)

36,00,000


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Material consumed (supplier extend two months credit)

9,00,000

Wages paid (monthly in areas)

7,20,000

Manufacturing expenses outstanding at the end of the

Year (cash expenses are paid one month in arrear)

80,000

Total administrative expenses paid as above

2,40,000Q

Sales promotion expenses, paid quarterly in advance

1,20,000

The company sells its products on gross profit of 25% counting

depreciation as part of cost of production and keeps one months

stock

each of raw material and finished goods and a cash bal. of rs.

1,00,000.


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Problem16:

XYZ cements Ltd. Sells its products on a gross profit of 20% on sales.

The followimg information is extracted from its annual accounts for the

year ended 31st Dec. 1989.

Rs. In lacs

Sales at 3 months credit 40.00

Raw material 12.00

Wages paid

- 15 days in arrears 9.60

Manufacturing Expenses paid

- One month in arrears 12.00


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Administrative exp. Paid

- Payable half yearly in advance 2.00

The company enjoys one months credit from the supplier of raw

materials and maintains 2 months, stock of raw materials and half

months finished goods. Cash balance is maintained at Rs. 1,00,000

as a precautionary balance. Assuming a 10% margin, find out the

working capital requirements of XYZ cements Ltd.

Problem17:

Calculation the amount of working capital requirement for jolly &

co. Ltd. from the following information.

Rs. Per unit

Raw material 160

Direct labour 60

Overheads 120


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Total cost 340

Profit 60

Selling price 400

Raw material are held in stock on and average for one month,

materials are in process on and average for half a month. Finished

goods are in stock on and average for month.

Credit allowed by supplier is one month and credit allowed to

debtors is two months. Time lag in payment of wages is 1.5 weeks.

Time lag in payment of overhead is one month. One forth of the

finished goods are sold against cash.

Cash on hand and at bank is expected to be Rs.50,000 and

expected level of production amounts to b 1,04,000 units.

You may assume that production is carried on evenly

throughout the tear, wages and overheads accrue and a timeperiod of four weeks is equivalent to a month.


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working capital sums 16

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