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WC - Problmes

The document outlines two scenarios for estimating working capital requirements for a client. The first scenario involves calculating net working capital based on production costs, stock levels, and payment lags, while the second scenario focuses on the average working capital needed for a business acquisition. Both scenarios include a contingency allowance of 10% on the computed figures.

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Mamilla Bhavani
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13 views2 pages

WC - Problmes

The document outlines two scenarios for estimating working capital requirements for a client. The first scenario involves calculating net working capital based on production costs, stock levels, and payment lags, while the second scenario focuses on the average working capital needed for a business acquisition. Both scenarios include a contingency allowance of 10% on the computed figures.

Uploaded by

Mamilla Bhavani
Copyright
© © All Rights Reserved
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- Problems

1. While preparing a project report on behalf of a client you have


collected the following facts. Estimate the net working capital
required. Add 10% to you computed figure to allow for contingency.

Particulars Amount Per Unit (Rs.)


Estimated per unit of production
Raw Material Rs. 80
Direct Labour Rs. 30
Over heads (Ex, Dep Rs. 10 PU) Rs. 60
Total Cash Cost Rs. 170
Additional Information:
1. Selling Prices, Rs, 200 Per Unit
2. Level of Activity, 1,04,000 units PA
3. Raw Materials in Stock, average 4 weeks
4. Work In Progress (assume 50% completion stage in respect of
conversion cost and 100% in respect of materials), average 2
weeks
5. Finished goods in stock, average 4 weeks
6. Credit allowed to debtors, average 8 weeks
7. Lag in payment of wages, average 1-5 weeks
8. Cash at Bank is expected to be Rs. 25,000
9. You may assume that production is carried on evenly throughout the
year (52 weeks) and wages and overheads accrue similarly.
10. All sales are on credit basis only.

2. X and Y ltd. Is desirous to purchase a business and consulted you,


and one point on which you are asked to advise them, is the
average amount of working capital which will be required in the first
year’s working.
You are given the following estimates and are instructed to add 10
per cent to the computed figure to allow for contingencies.

Particulars Amount for the year


(Rs.)
1) Average amount backed up for
stocks: 5,000
Stock of finished goods 8,000
Stock of stores and materials

2) Average Credit Given


Inland sales, 6 weeks’ credit 3,12,000
Export sales, 1.5 weeks’ credit 78,000
3) Average time lag in payment of
wages and other outgoings:
Wages, 1.5 weeks 2,60,000
Stocks and Materials. 1.5 Months 48,000
Rent and Royalties ,6 Months 10,000
Clerical staff, 0.5 Months 62,400
Manager, 0.5 months 4,800
Miscellaneous expenses, 1.5 48,000
months
4) Payment in Advance
Sundry expenses (paid quarterly in 8,000
advance) 11,000
Undrawn profits on an average
throughout the year

Set up your calculations for the average amount of working capital


required.

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