Class Room Problems on Estimation of Working Capital

Problem 1: Bright Ltd is seeking your advise in determining its working capital
requirement. You can assume 10% provision for contingency to your computed figure

Estimated Cost Per Unit

Raw Materials 50
Direct Labour 15
Overheads 20
Total Cost 85
Additional Information
i. Selling Price per Unit Rs 125/-
ii. Raw Material are kept in store on an average for 3 months
iii. Finished goods remain in stocks on average for 2 months
iv. Units are expected to be in production process on an average for half month
v. Credit allowed to customers is 3 months and credit allowed by suppliers is 2
months
vi. Lag in payment of wages and overhead is 1 month
vii. Level of activity is 2,00,000 units.
Problem 2: A Proforma cost sheet of a company provides the following data:
Particulars Cost Per Unit
Raw Materials 52
Direct Labour 19.5
Overheads 39
Total Cost 110.5
Profit 19.5
Selling Price 130
The following is the additional Information available:
i. Average Raw material in store is 1 month
ii. Average Raw materials in process is Half month
iii. Credit allowed by suppliers is 1 month
iv. Credit allowed to Debtors is 2 months
v. Time lag in payment of wages-One and a Half Weeks
vi. Time lag in payment of overheads-One month
vii. One fourth of sales are on cash basis
viii. Cash Balance is expected to be Rs 1,20,000
You are required to prepare a statement showing the working capital needed to
finance a level of activity of 70,000 units of output
 Problem 3: PC Ltd sells its products on a gross profit of 20% on Sales. The
following information is extracted from its annual accounts for the year ended 31 st
Dec,2018
Particulars Amount(Rs)
Sales at 3 months credit 40,00,000
Raw Material 12,00,000
Wages Paid -Average time Lag 15 Days 9,60,000
Manufacturing Expenses Paid-One Month in Arrears 12,00,000
Administrative Expenses Paid-One Month in Arrears 4,80,000
Sales Promotion Expenses-Payable Half Yearly in Advance 2,00,000

The Company enjoys one month credit from the suppliers of Raw Materials and
maintains a 2 months stock of Raw Materials and one and half month’s stock of
finished goods. The cash balance is maintained at Rs 1,00,000 as a precautionary
measure. Assuming a 10% margin, find out the working capital requirement of PC

Problem 6: Please help your client in estimating working capital requirement based
on the information given below:

1. Expected level of production 4,80,000 Units

2. Raw Materials to remain in stock, average 2 months.
3. Processing period for each unit of product 1 month
4. Finished goods remain in stocks on an average for 2 months
5. Credit allowed to the customers from the date of dispatch 3 months
6. Expected Ratios of cost to selling price
a. Materials 50%
b. Direct wages 15%
c. Overhead 20%
7. Selling Price Per Unit Rs 25