Working capital practical Assignment
1. Calculate the working capital requirement from the following particulars:
Estimated cost per unit of production Amount per unit
Raw material 100
Direct labour 40
Overhead 80
Total 220
Addition informational:
a) Selling price per unit Rs. 240
b) Level of activity 1,04,000 units per annum
c) Raw material in stock average 4 weeks
d) Work in progress( assume 100% stage of completion of materials and 50% for
labour and overheads) average 2 weeks
e) Finished goods average 4 weeks
f) Credit allowed by suppliers average 4 weeks
g) Credit allowed by debtors average 8 weeks
h) Lag in payment of wages average 1.5 weeks
i) Cash at bank is expected to be Rs. 25,000. Assume that production is sustained
during 52 weeks of the year.
2. A Performa cost sheet of the company provides the following particulars
Elements of cost Amount per unit
Raw materials 80
Direct wages 30
Overheads 60
=Total cost 170
Add: Profit 30
= Selling Price 200
The following further particulars are available:
a) Raw materials are in stock on an average for one month.
b) Materials are in process on an average for half a month .Assume 50% completion
stage in respect of labour and overhead and 100% completion in respect of materials.
c) Finished goods are in stock on an average for one month.
d) Credit allowed by the supplier is one month.
e) Credit allowed to debtors is two month.
f) Time lag in payments of wages is 1.5 weeks.
g) Time lags in payment of overhead expenses are one month.
h) One-fourth of the output is sold against cash.
i) Cash in hand and at bank is expected to be Rs.25,000
Dr. Ramanpreet Singh Page 1
Working capital practical Assignment
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 evenly throughout the year and wages and
overheads accrue similarly. Assume a time period of 4 weeks equivalent to one month.
3. A and B who wants to buy a business seek your advice about the average working
capital requirement in the first year trading. The following estimates are available and
you are asked to add 10% to allow for contingencies.
a) Average amount locked up in stock:
Stock of finished product and work in progress 5,000
Stock of stores, materials.etc 8,000
b) Average credit given:
Local sales- 2 weeks credit 78,000
Outside the state – 6 weeks credit 3,12,000
c) Time available for payment:
For purchases - 4 weeks 96,000
For wages- 2 weeks 2,60,000
Calculate the average amount of working capital required. Give details of your working.
4. With the help of the following data calculate operating cycle for PQR LTD.
Particulars Amount
Sales 1,500
Cost of production 1,050
Purchase 300
Average raw material stock 40
Average work in progress 42.5
Average finished goods 90
stock
Average creditors 45
Average debtors 175
All sales are made on credit basis. Number of days in the year =365 days.
5. Calculate the operating cycle of a company
Particulars Amounts
Raw Material Consumption p.a. 8,42,000
Annual Cost of Production 14,25,000
Annual Cost of Sales 15,30,000
Annual Sales 19,50,000
Average value of current asset
hold
Raw material 1,24,000
Work in Progress 72,000
Dr. Ramanpreet Singh Page 2
Working capital practical Assignment
Finished goods 1,22,000
Debtors 2,60,000
The company gets 30 days credit from the supplier. All sales are made on
credit basis. Number of days in the year =365 days.
Dr. Ramanpreet Singh Page 3
