WCM Questions Students

eWC MANAGEMENT & OPERATING CYCLE
Qs 1
From the details of ABC Ltd, you are required to calculate;
a) Net operating cycle
b) Number of operating cycles in a year
Qs 2 Greenbuck Ltd is desirous to purchase a business and has consulted you, and one point on
which you are asked to advise them, is the average amount of working capital which will be
required in the first year’s working.
You are given the following estimates and are instructed to add 10 per cent to your computed
figure to allow for contingencies.
Qs 3
On 1st January, the Managing Director of Naureen Ltd. wishes to know the amount
of working capital that will be required during the year. From the following information,
PREPARE the working capital requirements forecast.
Production during the previous year was 60,000 units. It is planned that this level of
activity would be maintained during the present year.
The expected ratios of the cost to selling prices are Raw materials 60%, Direct wages
10% and Overheads 20%.
Raw materials are expected to remain in store for an average of 2 months before issue
to production.
Each unit is expected to be in process for one month, the raw materials being fed into the
pipeline immediately and the labour and overhead costs accruing evenly during the
month.
Finished goods will stay in the warehouse awaiting dispatch to customers for
approximately 3 months.
Credit allowed by creditors is 2 months from the date of delivery of raw material.
Credit allowed to debtors is 3 months from the date of dispatch.
Selling price is ` 5 per unit.

There is a regular production and sales cycle.
Wages and overheads are paid on the 1st of each month for the previous month. The
company normally keeps cash in hand to the extent of ` 20,000.
Qs 4
Samreen enterprises has been operating its manufacturing facilities till 31.3.23 on a single shift
basis with the below cost structure
Per unit (Rs)

Cost of Materials 6.00
Wages (out of which 40% fixed) 5.00
Overheads (out of which 80% fixed) 5.00
Profit 2.00
Selling Price 18.00
Sales during 2022-23 – ` 4,32,000
As at 31.3.2022 the company held:
(Rs)
Stock of raw materials (at cost) 36,000
Work-in-progress (valued at prime cost) 22,000
Finished goods (valued at total cost) 72,000
Sundry debtors 1,08,000
In view of increased market demand, it is proposed to double production by working an

extra shift. It is expected that a 10% discount will be available from suppliers of raw
materials in view of increased volume of business. Selling price will remain the same.
The credit period allowed to customers will remain unaltered. Credit availed of from
suppliers will continue to remain at the present level i.e., 2 months. Lag in payment of
wages and expenses will continue to remain half a month.
You are required to prepare the additional working capital requirements, if the policy to
increase output is implemented.
Q.5 While preparing a project report on behalf of your client a New North ltd you have
collected the following facts. Estimate the net working capital required for that project. Add 10
per cent to your computed figure to allow contingencies:
 Selling price, Rs 200 per unit

 Level of activity, 1,04,000 units of production per annum
 Raw materials in stock, average 4 weeks
 Work in progress (assume 50 per cent completion stage in respect of conversion costs
and 100 per cent
 completion in respect of materials), average 2 weeks
 Finished goods in stock, average 4 weeks
 Credit allowed by suppliers, average 4 weeks
 Credit allowed to debtors, average 8 weeks
 Lag in payment of wages, average 1.5 weeks
 Cash at bank is expected to be, Rs 25,000.
 You may assume that production is carried on evenly throughout the year (52 weeks)
and wages and
 Overheads accrue similarly. All sales are on credit basis only.
Qs 6
A newly formed company has applied for a loan to a commercial bank for financing its
working capital requirements. You are requested by the bank to prepare an estimate of the
requirements of the working capital for the company. Add 10 per cent to your estimated figure
to cover unforeseen contingencies. The information about the projected profit and loss account
of this company is as under:
The figures given above relate only to the goods that have been finished and not to work in
progress; goods equal to 15 per cent of the year’s production (in terms of physical units) are in
progress on an average, requiring full materials but only 40 per cent of other expenses.
The company believes in keeping two months consumption of material in stock; desired cash
balance, Rs 40,000.
Average time-lag in payment of all expenses is 1 month; suppliers of materials extend 1.5
months credit.
Sales are 20 per cent cash; rest are at two months credit; 70 per cent of the income tax must be
paid in advance in quarterly instalments.
You can make such other assumptions as you deem necessary for estimating working capital
Requirements.
Qs 7
Crimson Industries Ltd is desirous of assessing its working capital requirements for the next
year.
The finance manager has collected the following information for the purpose.
The product is subject to excise duty of 10 per cent (levied on cost of production) and is sold at
Rs 300 per unit.
Additional information:
(i) Budgeted level of activity is 1,20,000 units of output for the next year.
(ii) Raw material cost consists of the following:
Pig iron Rs 65 per unit, Ferro alloys 15 per unit, and Cast iron borings 10 per unit
(iii) Raw materials are purchased from different suppliers, extending different credit period:
Pig iron, 2 months, Ferro alloys, 1/2 month, and Cast iron borings, 1 month.
(iv) Product is in process for a period of 1/2 month. Production process requires full unit (100
per cent) of pig iron and ferro alloys in the beginning of production; cast iron boring is required
only to the extent of 50 per cent in the beginning and the remaining is needed at a uniform rate
during the process. Direct labour and other overheads accrue similarly at a uniform rate
throughout production process.
(v) Past trends indicate that the pig iron is required to be stored for 2 months and other
materials for 1 month.
(vi) Finished goods are in stock for a period of 1 month.
(vii) It is estimated that one-fourth of total sales are on cash basis and the remaining sales are
on credit.
The past experience of the firm has been to collect the credit sales in 2 months.
(viii)Average time-lag in payment of all overheads is 1 month and ½ months in the case of
direct labour.
(ix) Desired cash balance is to be maintained at Rs 10 lakh.
You are required to determine the amount of net working capital of the firm. State your
assumptions if any.
Qs 8
From the following data, compute the duration of the operating cycle for each of the two years
and comment on the increase/decrease:

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eWC MANAGEMENT & OPERATING CYCLE

Selling price is ` 5 per unit.

Per unit (Rs)

As at 31.3.2022 the company held:

In view of increased market demand, it is proposed to double production by working an

 Selling price, Rs 200 per unit

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