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
Rs.

Year 2
Rs.

20,000
14,000
21,000
96,000
1,40,000
1,60,000
32,000
16,000

27,000
18,000
24,000
1,35,000
1,80,000
2,00,000
50,000
18,000

Stock
Raw Material
Work in progress
Finished Goods
Purchase of Raw Material
Cost of Goods Sold
Sales
Debtors
Creditors
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
Estimated cost per unit of production
Raw Material
Direct Material
Overheads
Total cash cost

Amount per Unit

Rs.
80
30
60
170

Additional information:
1. Selling price Rs.200
2. Level of activity 104000 units per annum
3. Raw material in stock 4 weeks
4. WIP 2 weeks (Assume 50% completion stage in respect of conversion costs and 100%
completion in respect of materials
5. Finished goods in stock 4 weeks
6. Credit allowed by suppliers 4 weeks
7. Credit allowed to debtors 8 weeks
8. Lag in payment of wages 1.5 weeks
9. 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
Average Amount backed up for Stocks
Finished Goods

Amount (Rs.)
5,000

Stores & Raw Material

Average Credit Given to the Customers
Domestic Sales ( 6 weeks credit)
Export Sales (1.5 Weeks credit)

8,000
3,12,000
78,000

Average time lag in payment of wages and other overheads

Wages (1.5 Months)
Stock and Materials (1.5 Months)
Rent & Royalites (6 months)
Clerical Staff (0.5 Months)
Manager (0.5 Months)
Misc. Expenses (1.5 Months)

2,60,000
48,000
10,000
62,400
4,800
48,000

Payments in Advance
Sundry Expenses (Paid quarterly in advance)
Undrawn Profits

8,000
11,000

Add 10% for contingencies in your calculation.