WORKING CAPITAL MANAGEMENT

1. DCM Ltd. had an annual sale of 50000 units at Rs. 100 per unit. The
company works for 50 weeks in a year. The cost details of the
company are as given below :-
Cost Elements Unit Cost (Rs.)
Raw Materials 30
Labour 10
Overheads 20
Total Cost 60
Profit 40
Selling Price 100
The company has the practice of storing raw material for 4 weeks’
requirements. The 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.

2. Forecast the requirement of working capital of a Trading Company

from the following particulars :-
Projected Annual sales (48 weeks) Rs. 120 lakhs
Percentage of Net Profit to Sales 20%
Average stock holding in terms of sales requirements 8
weeks
Average credit period allowed to debtors 10
weeks
Average credit period allowed by creditors 4 weeks

3. M/s Shailesh Enterprise manufactures and sells household goods to

retailers. The following are the budgeted figures for the year 1991-92.
Sales 9,42,480
Less :- Raw Materials 3,77,040
Labour 1,85,160
Overheads 1,38,000 7,00,200
Profit 2,42,280
Additional Information :-
(i) Raw materials are carried in stock on an average for 2 months.
(ii) Process period is ½ a month.
(iii) Finished goods are carried in stock on an average for 1 month.
(iv) Normal credit period allowed to customers is 3 months.
(v) Suppliers of raw materials allow 2 months time.
(vi) Time lag in payment of labour and overheads is 1 month.
(vii) Cash on hand and at bank is estimated at Rs. 20,000 throughout
the year.
(viii) The activity is spread over evenly during the year.
(ix) The working capital is to be increased by 10% for contingencies.
Forecast the requirement of working capital
4. DNA Ltd. furnishes the following income statement for the year 2007 :-
Sales (Credit 2 months) 12,00,000
Purchases (Credit 1 month) 3,90,000
Wages (Credit ½ a month) 1,02,000
Factory rent (Payable quarterly 72,000
in advance)
Factory expenses (1 month’s credit) 96,000
Office expenses (1 month’s credit) 12,000
Managing Directors Salary (2 months
Credit) 48,000 8,00,000
Profit 4,00,000
Additional Information :-
Average investment in stock of raw materials and WIP is expected to
be Rs. 96,000 and 54,000 resp. Average investment in stock of finished
goods is expected to be Rs. 55,000.
You are required to forecast the working capital requirement of the
company.