INSTITUTE OF MANAGEMENT TECHNOLOGY

CENTRE FOR DISTANCE LEARNING

GHAZIABAD
End-Term Examinations – December 2009
Subject Code : IMT-07 Time Allowed : 3 Hours
Subject Name: Working Capital Management Max. Marks : 70

Notes: (a) Answer any FOUR questions from SECTION-A and CASE STUDY as given in SECTION-B.
Each Question (SECTION-A) carries 14 MARKS and (SECTION-B) Case Study carries 14 MARKS.
(b) For students enrolled before January 2008, the Question Paper would be treated for 50 marks instead of 70 marks.
(c) No doubts/clarifications shall be entertained. In case of doubts/clarifications, make reasonable assumptions and proceed.
SECTION-A MARKS : 56

1. Define working capital and distinguish between permanent and temporary working capital. What do you understand by
‘positive’ and ‘negative’ working capital? Explain with suitable examples.
2. What do you understand by working capital management? Enumerate the dangers of deficiency and surplus in working
capital.
3. Any good inventory policy followed by an organization must balance the requirements of two opposing and conflicting
demands. What are these? What, according to you, should be the ingredients of a good inventory policy?
4. From the following particulars calculate the (i) re-order point, and (ii) the EOQ:
Annual demand: 26,000 units @ Rs. 9 per unit.
The firm can purchase it at Rs.6.15 per unit.
Carrying cost is 20% of the inventory value.
Fixed cost is Rs. 1,000 per order.
Lead time: 4 weeks
Sales will be made evenly over the period.
Safety stock may be assumed to be 1,000 units.
Taking inflation factor of 10 percent, (iii) determine the EOQ.
5. What do you understand by “float”? Enumerate the various kinds of float. Explain their role in cash management.
6. ‘Credit terms to debtors can be relaxed so long as additional cost of investment does not exceed the additional
contribution’. – Examine the statement.
7. Discuss various methods of working out the maximum permissible level of bank borrowings as suggested by Tandon
Committee. In the wake of freedom given to the individual bank by the RBI recently in matters relating to working capital
financing, are the Tandon Committee recommendations relevant today? Discuss briefly.

SECTION-B (Case Study) MARKS : 14

ABC Co. starts manufacture in April, 2009. The prime cost for one unit is expected to be Rs. 200 (Rs 8for materials and Rs. 120
for labour).
In addition, variable expenses per unit are expected to be Rs. 40 and fixed expenses per month will be Rs. 15,00,000.
Payment for materials is to be made in the month following the purchase.
One-third of sales will be for cash, and the rest on credit to be settled in the following month.
Expenses are payable in the month in which they are incurred.
Selling price is Rs. 400 per unit.
The number of units manufactured and sold are expected to be as under:
April 9,000 units
May 12,000 units
June 18,000 units
July 21,000 units
Aug 21,000 units
Sept 24,000 units
Prepare the Cash Budget for April to September, 2009 ignoring the question of stocks.

ETE-Dec 09_23/12 Page 1 of 1 IMT-07