examples of working capital
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MBA Exam problems on Working capital managementTRANSCRIPT
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
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.