examples of working capital

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Working Capital Planning & Management Example 1.1 From the given data, calculate the duration of operating cycle for each of the two years and comment on the variation: Particulars Year 1 Year 2 Rs. Rs. Stock Raw Material 20,000 27,000 Work in progress 14,000 18,000 Finished Goods 21,000 24,000 Purchase of Raw Material 96,000 1,35,000 Cost of Goods Sold 1,40,000 1,80,000 Sales 1,60,000 2,00,000 Debtors 32,000 50,000 Creditors 16,000 18,000 Assume 360 days per annum for computation purpose. Example 1.2 Estimate the required Working Capital for the project from the below mentioned data. Add 10% to your computed figure to allow for contingencies: Particulars Amount per Unit Estimated cost per unit of production Rs. Raw Material 80 Direct Material 30 Overheads 60 Total cash cost 170 Additional information: 1. Selling price Rs.200 2. Level of activity 104000 units per annum 3. Raw material in stock – 4 weeks

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MBA Exam problems on Working capital management

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Page 1: Examples of Working Capital

Working Capital Planning & Management

Example 1.1

From the given data, calculate the duration of operating cycle for each of the two years and comment on the variation:

Particulars Year 1 Year 2Rs. Rs.

StockRaw Material 20,000 27,000Work in progress 14,000 18,000Finished Goods 21,000 24,000

Purchase of Raw Material 96,000 1,35,000Cost of Goods Sold 1,40,000 1,80,000Sales 1,60,000 2,00,000Debtors 32,000 50,000Creditors 16,000 18,000

Assume 360 days per annum for computation purpose.

Example 1.2

Estimate the required Working Capital for the project from the below mentioned data. Add 10% to your computed figure to allow for contingencies:

Particulars Amount per UnitEstimated cost per unit of production Rs.

Raw Material 80Direct Material 30Overheads 60

Total cash cost 170

Additional information:1. Selling price Rs.2002. Level of activity 104000 units per annum3. Raw material in stock – 4 weeks4. WIP – 2 weeks (Assume 50% completion stage in respect of conversion costs and 100%

completion in respect of materials5. Finished goods in stock – 4 weeks6. Credit allowed by suppliers – 4 weeks7. Credit allowed to debtors – 8 weeks8. Lag in payment of wages – 1.5 weeks9. Cash at bank – Rs.25,000

Assume that production is carried out evenly throughout the year.

Example 1.3

From the below estimates, compute the amount of working capital required to run the operations of the organisation:

Particulars Amount (Rs.)Average Amount backed up for Stocks

Page 2: Examples of Working Capital

Finished Goods 5,000Stores & Raw Material 8,000

Average Credit Given to the CustomersDomestic Sales ( 6 weeks credit) 3,12,000Export Sales (1.5 Weeks credit) 78,000

Average time lag in payment of wages and other overheadsWages (1.5 Months) 2,60,000Stock and Materials (1.5 Months) 48,000Rent & Royalites (6 months) 10,000Clerical Staff (0.5 Months) 62,400Manager (0.5 Months) 4,800Misc. Expenses (1.5 Months) 48,000

Payments in AdvanceSundry Expenses (Paid quarterly in advance) 8,000Undrawn Profits 11,000

Add 10% for contingencies in your calculation.