2.1 WC Management Questions

Working Capital Management
Questions for Class Practice
Q1.
Q2.
Q3.
Q4.
XYZ Co Ltd is a manufacturing company. Its production cycle indicates that materials are introduced at
the beginning of the production cycle, wages and overhead accrue evenly throughout the period of the
cycle. Wages are paid in next month of accrual. WIP includes full units of raw material used in the
beginning of production process and 50% wages and overheads are supposed to be conversion costs.
Details of production process and the components of working capital are as follows:
Production of pipes 120,000 units p.a

Duration of production cycle 1 month
Raw material inventory held 1 month consumption
Finished goods inventory held for 2 months
Credit allowed by creditors 1 month
Credit given to debtors 2 months
Cost price of raw material ₹ 60 per unit
Direct wages ₹ 10 per unit
Overheads ₹ 20 per unit
Selling price of finished pipes ₹ 100 per unit
Calculate:
The amount of working capital required for the company.
Q5.
The following annual figures relate to MNP Limited:
Sales (at 3 months credit) ₹ 90,00,000

Materials consumed (suppliers extend 1.5 months credit) ₹ 22,50,000
Wages paid (1 month in arrear) ₹ 18,00,000
Manufacturing expenses outstanding at the end of the year ₹2,00,000
(cash expenses are paid 1 month in arrear)
Total administrative expenses for the year ₹ 6,00,000
(cash expenses are paid 1 month in arrear)
Sales promotion expenses for the year (paid quarterly in ₹12,00,000
advance)
The company sells its products at a gross profit of 25% assuming depreciation as part of cost of
production. It keeps 2 months stock of finished goods and 1 month stock of raw material as inventory. It
keeps a cash balance of ₹ 250,000
Assume a margin of safety of 5%, work out the working capital required by the company on cash cost
basis.
Q6.
Calculate WC that will be required for next year.
Q7.
Deku ltd provides you the following information for estimation of working capital for 2022-23.
Historical Information for the year 2022-22:

Production & sales: 80% of capacity
Total Sales: Rs. 75 lakhs
Raw material per unit was Rs. 25 per unit
Selling price per unit was three times the raw material p.u.
Direct expenses cost p.u. was 1/3rd of the total cost p.u
The company maintains profit at 25% of total cost.
Forecast for 2023-24:

Production & sales will be 85% of its capacity
Raw material per unit price will decrease by 10%
Direct Expense per unit will increase by 30%
Direct Labour per unit will increase by 15%
Selling price p.u. will be set to maintain a profit margin of 25% on total cost p.u
Additional Information for 2023-24

1. Raw materials will be in stock for 1 month whereas Finished goods will remain in stock for 0.5 months
2. The production cycle is for 1.5 months. Degree of completion will be 40% for labour & expenses and
100% for materials
3. Cash Sales will be 25% of Credit sales
4. Credit sale are made to two zones:
Zone % of credit sale
X : 10% of these customers pay 1 month in 80%
advance; they are
given discount of 5%. Balance customers are
given 2-month
credit period
Y: The customers are given 1% discount and they 20%
accept a
bill for 1 month
5. Discount given for cash sales is 3%

6. Trade receivables are to be valued on selling price basis
7. Cash balance will be ₹ 400,000
8. Creditors are paid after 1 month.
9. Wages are paid 1.29 months in arrears
Estimate the amount of net working capital required by company.

Q8.
A company provides the following data for estimation of working capital using operating cycle:
( Per Unit) Rs.

Raw Material 104
Direct Labour 39
Overheads 78
Total Cost 221
Profit 79
Selling Price 300
Raw material holding period 4 weeks

Average WIP 2weeks (100% completion Raw Material, 50%
completion for Labour and overhead)
Finished goods 4 weeks
Credit allowed by suppliers 4 weeks
Credit allowed to customers 8 weeks
Time lag in payment of wages 1.5 week
Time lag in payment of overheads 4 weeks
Credit sales are 10 times the Cash purchases

Cash purchases are 0.5 times the Credit purchases
Cash balance of ₹ 2,70,000 is to be maintained
You are required to prepare a statement showing working capital needed to finance a level of activity
of 70000 units.
Debtors to be taken on sales basis. Take 52 weeks per year.
You may assume that production is carried on evenly, throughout the year and wages and overheads
accrue similarly.

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Working Capital Management

Questions for Class Practice

Production of pipes 120,000 units p.a

The amount of working capital required for the company.

The following annual figures relate to MNP Limited:

Sales (at 3 months credit) ₹ 90,00,000

Historical Information for the year 2022-22:

Forecast for 2023-24:

Additional Information for 2023-24

5. Discount given for cash sales is 3%

Estimate the amount of net working capital required by company.

( Per Unit) Rs.

Raw material holding period 4 weeks

Credit sales are 10 times the Cash purchases

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