Problem:1 The following are the estimates estimates furnished to you by Wcap Limited. Limited. 1. Estimated Estimated output 60000 60000 units. units. 2. Cost price price Rs 90 consisting consisting of raw material, material, labor labor cost and overheads overheads in the ratio of 3:2:1. 3. Raw material material and and finished finished goods will will remain remain in stock stock for 20 days days and 10 days respectively. respectively. 4. Work in process process will will be for on an average average 15 days, days, for which which labor cost cost and overheads are to be considered at 60% and 50% completion stage respectively. 5. Goods are sold sold at one month month credit. credit. 6. 20% purchase purchases s are made by advance advance paymen paymentt of one month, month, 20% are on cash basis and the remaining purchases are on 2months credit. 7. Wages Wages are are paid paid on monthl monthly y basis. basis. 8. Overheads Overheads are are paid with 20 20 days time lag. lag. 9. The manageme management nt wants to maintai maintain n minimum minimum cash balance balance of Rs 1,00,000. Prepare a statement showing estimated working capital.
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
Problem:2 A proforma cost sheet of a company provides the following particulars. Elements of cost
Amount per unit
Raw Material
80
Direct Labor Overheads Total cost Profit
30 60 170 30
Selling price
200
The following further particulars particulars are available. Raw materials are in stock of one month. Credit allowed by suppliers is one month. Credit allowed to customers is two months. Lag in payment of wages 1.5 weeks. Lag in payment of overheads one month. Materials are in process for an average of half month. Finished goods are in stock for an average of one month.
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
¼ of output is sold against cash. Cash in hand and at bank is expected to be 25,000. You are requested to prepare a statement showing the working capital needed to finance level of activity of 1,04,000 units of product. You may assume that production is carried on evenly throughout the year. Wages and overheads accrue similarly and a period of 4 weeks is equivalent to a month.
Problem:3 Calculate the working capital from the following particulars. (1)Annual Expenses Wages Stores and materials Office salaries Rent Other expenses
Rs 52,000 Rs 9,600 Rs 12,480 Rs 2,000 Rs 9,600
(2)Average amount of stock to be maintained Finished goods stock Materials/stores
Rs 1000 Rs 1600
(3)Expenses paid in advance (quarterly advance)
Rs1600p.a
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
(4)Annual sales Home market
Rs62000
Foreign market
Rs15600
(5)Lag in payment of Wages Stores and materials Office salaries Rent Other expenses
1.5 weeks 1.5months 0.5months 6months 1.5months
Problem:4
Raju brothers pvt. Ltd. Sells goods on a gross profit of 25%. Depreciation is considered in cost of production. The following are the annual firure given to you.
Sales (two months credit) Materials consumed(one month credit) Wages paid(1 month lag in payment) Administration exp.(1month lag in payment)
Success Academy For MBA Classes : 9011202759 Versatile Group
Rs.1800000 Rs. 450000 Rs.360000 Rs.120000
By-
Sales promotion exp.(paid quarterly in advance)
Rs.60000
Income tax payable in 4 equal installments of
Rs.150000
which one false in the next year cash manu. Exp.(1 month lag in payment)
Rs.480000
The company keeps 1 months stock each of raw materials and finished goods. It also keeps rs. 100000 in cash. You are required to estimate the working capital requarements of the company on cash basis assuming 15% safety margin.
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
Problem:5 On 1st January 1994, the board of directors of jain Ltd wish to know the amount of working capital that will be required to meet the programme of activity they have planned for the year. From the following information available, prepare: A working capital requirement forecast An estimated profit and loss account and balance sheet at the end of the year 1) Issued and paid up share capital Rs 2,00,000. 2) 5% debentures (secures on assets)Rs 50,000 3) Fixed assets valued at Rs 1,25,000 on 31 st December 1993. 4) Production during the previous year was 60,000 units, it is planned that this level of activity should be maintained during the present year. 5) The expected ratios of cost of selling price are : raw material 60%,direct wages 10%, and overheads 20%. 6) Raw materials are expected to remain in stores for an average of tow months before issue the production. 7) Each unit of production is expected to be in process for one month (assume that full units of raw material required at the beginning of manufacturing other conversion cost are 50%) 8) Finished goods will stay in warehouse for approximately 3 months. 9) Creditors allow credit for two months from the date of delivery of the materials. 10) Credit allowed to debtors is three months from the date of dispatch.
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
11)
Selling price per unit is Rs 5
12)
There is a regular production and sales cycle.
Problem 6: On 1.1.87, board of XYZ Ltd. planned a program for the year. They desire to know the amount of working capital required for the same. From the following information, prepare an estimate of working capital required and a forecasted Profit and Loss Account and Balance Sheet neglecting depreciation on fixed assets. Issued share capital
Rs.4, 00,000
8% Debentures
Rs.1, 00,000
Fixed Assets on 1.1.87
Rs.2, 50,000
Production during 1986 was 1, 20,000 and it is proposed to maintain the same during 1987.The expected ratios of cost to selling price are: Raw Material
60%
Direct Wages
10%
Overheads
20%
1. Raw Material are expected top remain in stores for an average of 2 months before issue to production. 2. Each unit of production is expected to be in process for 1 month.
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
3. Finished goods will stay in warehouse awaiting despatch to customers for approximately 3 months. 4. Credit allowed by creditors is 2 months from the date of delivery of raw materials. 5. Credit given to debtors is 3 months from the date of despatch. 6. Selling price is Rs.5/- per unit. 7. Sales and production follow a consistent pattern.
Problem 7: The management of Royal Industries has called for a statement showing working capital needs to finance a level of activity of 1, 80,000 units of output for the year. The cost structure for the company’s product for the above mentioned activity level is detailed below. Cost per Unit (Rs.) Raw materials
20
Direct Labour
5
Overheads (including depreciation of Rs.5 per unit)
15 40
Profit Selling Price
10 50
Additional Information:
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
(a) Minimum desired cash balance is Rs.20,000 (b) Raw materials are held in stock, on an average for two months. (c) Work in progress (assume 50% completion stages) will approximate to half a month’s production. (d) Finished goods remain in warehouse on an average for a month. (e) Suppliers of materials extend a month’s credit, Cash sales are 25% of total sales. (f) There is a time-lag in payment of wages of month and half a month in case of overheads. From the above facts, you are required to (i)
Prepare a statement showing working capital needs.
(ii)
Determine the maximum working capital finance available under first two methods suggested by Tandon Committee
Problem 8: Estimate working capital required from the data of Delhi Ltd.
Cost price per unitRaw material
RS.40
Labour
Rs.10
Overheads Projected sales Debtors pay after
Rs.30 75000 units at
Rs.100 per unit
10weeks
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
Creditors are paid after
4weeks
Raw material in stock
6weeks
Finished stock
8weeks
Production Processing time
4weeks
Wages are paid once in
4weeks
Contingency 10%of working capital Assume Cash and Bank Balance
Rs.1,87,500
Problem 9 : You are required to calculate average amount of working capital from the following information. Estimates for year Rs. (a)Average amount locked up forStock of finished goods
Rs.5,000
Stock of stores/materials
Rs.8,000
(b)Average Credit givenInland sales -6 weeks credit
3,12,000
Export sales-1.5 weeks credit
78,000
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
(c) Lag in payment ofWages-1.5 weeks
2,60,000
Stores/materials etc.-1.5 months
48,000
Rent, Royalties etc.-6 months
10,000
Staff Salary-1/2 month
4,800
Miscellaneous Expenses-1.5 months
48,000
(d)Payment in advanceSundry Expenses (Paid Quarterly in advance)
8,000
Problem 11: From the following details, prepare an estimate of the requirement working capital. Production
-60,000 units
Selling price per unit
-Rs.5
Raw Materials
-60% of selling price
Direct Wages
-10% of selling price
Overheads
-20% of selling price
Materials in hand requirements.
-2 months
Production time
-1 month
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
Finished goods in stores
-3 months
Credit for material
-2 months
Credit allowed to customers
-3 months
Average cash balance
Rs.20,000
Wages and overheads are paid at the beginning of the month following. In production, all the required materials are charged in the initial stages and wages and overheads accrue evenly.
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
Problem 12: Prepare a statement showing estimated amount of working capital from the following information of VORLAP Limited, Pune: •
•
•
•
•
•
Expected sales level: 24,000 units @ Rs. 150 per unit. Cost of the product (per unit) : Raw ,aterial-Rs.60, Labour cost- Rs.40, Variable overheads-Rs.20. Raw material and finished goods will stay in stock for 10 days and 20 days res. The material will stay in process for 15 days. The labour cost and overheads may be considered at 60% completion stage for work in Progress. The purchases are made with two months credit; while the goods are sold with one and a half month credit.
•
Labourers are paid on every 10th day of the next month.
•
Overheads are paid with one month time lag.
•
The company wants to maintain Rs.1, 00,000 for contingencies.
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
Problem 13: Prepare a statement showing estimated amount of working capital from the following information of WORCAP Limited, Pune: •
•
Expected sales level 1, 04,000 units @ Rs. 25 per unit.
Cost of the product (per unit): Raw material-Rs.8, Labour- Rs.6, Overheads -Rs.3.
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
•
•
•
•
•
Raw material and finished goods will remain in stock for 2 weeks and 3 weeks res.
The material will remain in process for 15 days.
The work-in-progress shall be valued at 60% and 40% in completion stage of Labour cost and Variable overheads res. Fixed overhead will be ignored for this situation.
The purchases are made with 2 months credit while the goods are sold with one and a half months credit.
70% of the Labour cost is paid on every 10th day of the next month while remaining overheads are paid on weekly basis.
•
Overheads are paid with 1 month time lag.
•
Add 10% of your computation for contingencies.
Problem14:
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
From the following detail. You are required to make an assessment of the average amount of working capital requirement of Fine Drinks Limited. Average period Estimate for frist Of credit
year
Rs. Purchase of material 26,00,000 Wages 19,50,000 Overheads Rent, rates etc. 1,00,000 Salaries 8,00,000 Other overheads 7,50,000 Sales 2,00,000 Credit sales 60,00,000
6 weeks
1/2weeks
6 months
1 month
2months
cash
2 months
Average amount of stock and Work in progress 4,00,000 Average amount of undrawn profit 3,00,000
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
It is to be assumed that all expenses and income were made at even rate for the year.
Problem15: Following annual firures relate to XYZ & co.
Rs. Sales (at two months’ credit) 36,00,000
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
Material consumed (supplier extend two months’ credit) 9,00,000 Wages paid (monthly in areas) 7,20,000 Manufacturing expenses outstanding at the end of the Year (cash expenses are paid one month in arrear) 80,000 Total administrative expenses paid as above 2,40,000Q Sales promotion expenses, paid quarterly in advance 1,20,000
The company sells its products on gross profit of 25% counting depreciation as part of cost of production and keeps one month’s stock each of raw material and finished goods and a cash bal. of rs. 1,00,000.
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
Problem16: XYZ cements Ltd. Sells its products on a gross profit of 20% on sales. The followimg information is extracted from its annual accounts for the year ended 31st Dec. 1989. Rs. In lacs Sales at 3 months’ credit Raw material
40.00 12.00
Wages paid -
15 days in arrears
9.60
Manufacturing Expenses paid -
One month in arrears
Success Academy For MBA Classes : 9011202759 Versatile Group
12.00
By-
Administrative exp. Paid -
Payable half yearly in advance
2.00
The company enjoys one months’ credit from the supplier of raw materials and maintains 2 months, stock of raw materials and half month’s finished goods. Cash balance is maintained at Rs. 1,00,000 as a precautionary balance. Assuming a 10% margin, find out the working capital requirements of XYZ cements Ltd.
Problem17: Calculation the amount of working capital requirement for jolly & co. Ltd. from the following information. Rs. Per unit Raw material
160
Direct labour
60
Overheads
120
Success Academy For MBA Classes : 9011202759 Versatile Group
By-
Total cost
340
Profit Selling price
60 400
Raw material are held in stock on and average for one month, materials are in process on and average for half a month. Finished goods are in stock on and average for month. Credit allowed by supplier is one month and credit allowed to debtors is two months. Time lag in payment of wages is 1.5 weeks. Time lag in payment of overhead is one month. One forth of the finished goods are sold against cash. Cash on hand and at bank is expected to be Rs.50,000 and expected level of production amounts to b 1,04,000 units. You may assume that production is carried on evenly throughout the tear, wages and overheads accrue and a time period of four weeks is equivalent to a month.
Success Academy For MBA Classes : 9011202759 Versatile Group
By-