LOVELY PROFESSIONAL UNIVERSITY

HOMEWORK NO 4

PART A

Qns.1 A proforma cost sheet of a company provides the following

particulars:
Particulars Amount per unit
Elements of cost:
Raw materials Rs 80
Direct labour 30
Overhead 60
Total cost 170
Profi t 30
Selling price 200
The following further particulars are available:
Raw materials in stock, on average, one month; Materials in process
(completion stage, 50 per cent), on average, half a month; Finished goods in
stock, on average, one month.
Credit allowed by suppliers is one month; Credit allowed to debtors is two
months; Average time-lag in payment of wages is 1.5 weeks and one month
in overhead expenses; one-fourth of the output is sold against cash; cash in
hand and at bank is desired to be maintained at Rs 3,65,000.
You are required to prepare a statement showing the working capital needed
to finance a level of activity of 1,04,000 units of production. You may
assume that production is carried on evenly throughout the year, and wages
and overheads accrue similarly. For calculation purposes, 4 weeks may be
taken as equivalent to a month.

Qn.2 Foods Ltd is presently operating at 60 per cent level, producing 36,000
packets of snack foods and proposes to increase its capacity utilisation in the
coming year by 33.33 percent over the existing level of production. The
following data has been supplied:
(i) Unit cost structure of the product at current level:
Raw material Rs 4
Wages (variable) 2
Overheads (variable) 2
Fixed overhead 1
Profit 3
Selling price 12
(ii) Raw materials will remain in stores for 1 month before being issued for
production. Material will remain
in process for further 1 month. Suppliers grant 3 months credit to the
company.
(iii) Finished goods remain in godown for 1 month.
(iv) Debtors are allowed credit for 2 months.
(v) Average time-lag in wages and overhead payments is 1 month and
these expenses accrue evenly throughout the production cycle.
(vi) No increase either in cost of inputs or selling price is envisaged.
Prepare a statement showing working capital requirement at the new level,
assuming that a minimum cash balance of Rs 19,500 has to be maintained

Qns.3 You are supplied with the following information in respect of XYZ Ltd
for the ensuing year:
Production of the year , 69,000 units
Finished goods in store, 3 months
Raw material in store, 2 months’ consumption
Production process, 1 month
Credit allowed by creditors, 2 months
Credit given to debtors, 3 months
Selling price per unit, Rs 50
Raw material, 50 per cent of selling price
Direct wages, 10 per cent of selling price
Manufacturing and administrative overheads, 16 per cent of selling
price
Selling overheads, 4 per cent of selling price
There is a regular production and sales cycle and wages overheads accrue
evenly. Wages are paid in the next month of accrual. Material is introduced
in the beginning of the production cycle. You are required to ascertain its
working capital requirement..

Qns.4 A proforma cost sheet of a company is as following:-

Material 40%
Direct Labour 20%
Overheads 20%
The following particulars are available
a) It is proposed to maintain a level of activity of 2,00,000 units
b) Selling price Rs-12 per unit
c) Raw material are expected to remain in stores for average of 1 month
d) Material will be in process, on averages half a month and is assumed
to be consisting of 100% raw material, wages and overheads
e) Finished goods are expected to remain in stores for average of 1
month
f) Credit allowed to debtors is 2 months
g) Credit allowed by suppliers is 1 month
h) You may assume that sales and production follow a consistent pattern
 Prepare a statement of working capital requirement

Qns.5 ABC co wants you to advice them in average working capital required
in first year of working:-
You are given following estimates and are instructed to add 10% to your
computed figure to allow for contingencies :-
1. Amount blocked up for stocks:-
Stocks of finished product 5,000
Stock of stores, materials etc 8,000
2. Average credit given:-
Inland sales- 6 weeks credit 3,12,000
Export- 1 ½ weeks 78,000
3. Lag in payment of wages and
other outgoings:
Wages- 1 ½ weeks 2,60,000
Stock of materials- 1 ½ months 48,000
Rent, royalties- 6 months 10,000
Clerical staff= ½ month 62,400
Manager= ½ month 4,800
Miscellaneous expenses- 1 ½ 48,000
month
4. Payment in advance:
Sundry expenses (paid 8,000
quarterly in advance)
5. Undrawn profit on the average 11,000
throughout the year
Set up your calculations

Qns.6 From the following estimate requirement for net working capital
Raw material 400
Direct labour 150
Overheads (excluding depreciation) 300
Total cost 850
Other information:-
Selling price Rs.1,000 per unit
Output 52,000 units per annum
Raw material in stock Average 4 weeks
Work in process:- (assume 50%
completion stage with full material Average 2 weeks
consumption)
Finished goods in stock Average 4 weeks
Credit allowed by suppliers Average 4 weeks
Credit allowed to debtors Average 8 weeks
Cash at bank expected to be Rs.50,000
Assume production is sustained at an even pace during 52 weeks. All sales
are on credit basis