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c From the following data, compute the operating cycle for each of the two years and 10
comment on the increase or decrease I Year II year
Stock Rs. Rs.
Raw materials 20,000 27,000
Work-in-progress 14,000 18,000
Finished goods 21,000 24,000
Purchase of raw materials 96,000 1,35,000
Cost of goods manufactured 1,40,000 1,80,000
Sales 1,60,000 2,00,000
Debtors 32,000 50,000
Creditors 16,000 18,000
Assume 360 days for computation purposes.
a Explain the concept of work capital and also differentiate between gross working 5
capital and net working capital
b From the following information, calculate the operating cycle in days and amount
of working capital employed
Period covered 365 days
Total production cost Rs.11,000
Total cost of sales Rs.12,000
Raw materials consumption Rs. 4,600
Average total debtors outstanding Rs. 500
Credit sales for the year Rs.15,000
Value of average stock maintained:
Raw materials Rs.340
Work-in-progress Rs.380
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3 Finished goods Rs.280.
Amount given represents lakhs.
OR
4 10
a) Discuss about determinants of working capital
b) The management of Vishal Ltd has called has for a statement showing the 10
working capital needed to finance a level of activity of 3,00.000 units of output for
the year. The cost structure for the company’s product, for the above mentioned
activity level, is detailed below:
Per unit
Rs.
Raw materials 20
Direct labour 5
Overheads 15
Total 40
Profit 10
Selling price per unit 50
The following additional information is also available:
i) Past experience indicates that the raw materials are held in stock, on an average
for two months.
ii) work-in-progress (100% complete in regard to materials and 50% for labour
and overheads) will approximately be to half a month’s production.
Selling price.
vii) The production pattern is assumed to be even during the year. Prepare the
statement for working capital requirements.
a 10
Write a note on cash management techniques and motives for holding cash
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5 b) The Board of management of Apple company Ltd. Request you to prepare a (10)
statement showing the working capital requirements of 2, 00,000 units of production.
The following information is available for your calculation.
1 Raw materials are in stock, on average one month.
2 Materials are in process, on average 2 weeks.
3 Finished goods are in stock on average one month.
4 Credit allowed by suppliers, one month.
5 Time lag payment from debtors 2 months.
6 Lag in payment of wages 2 weeks.
25% of the output is sold against cash. Cash in hand & cash at bank is expected to be
Rs.75, 000/-. It is assumed that production is carried on every throughout the year.
Wages and overheads accrue similarly and a time period of 4 weeks is equivalent to a
month.
The rate per unit of working capital components are as follows:
Components Rate per unit(Rs)
Raw materials 90
Direct labour 40
Overheads 75
Total 205
Profit 60
Selling price per unit 265
OR
a Write short notes on i) various types of dividend ii) Dividend theories 10
b The following details relating to a manufacturing firm are available. The figures of
November and December are actuals, where as those pertaining to January to April
are projected.
Month Sales Purchases Wages Manufacturing
Administrative
Expenses Expenses
Rs Rs Rs Rs Rs
November 4,00,000 1,80,000 80,000 60,000 40,000
December 4,25,000 2,00,000 85,000 75,000 40,000
January 4,50,000 2,10,000 90,000 75,000 40,000
February 5,00,000 2,25,000 85,000 60,000 40,000
March 4,50,000 1,60,000 80,000 60,000 40,000
April 4,00,000 1,60,000 75,000 45,000 40,000
The following details are also available
i) 20% of sales are on cash basis. The remaining amount is collected in two equal
instalments in the following two months.
ii) Suppliers of material offer a credit period of one month.
iii) 25% of wages and manufacturing expenses are paid in the following month.
iv) Administrative expenses are paid in the same month.
v) cash balance on 1st January 2017 was Rs.25,000/- 3|Page
6 You are required to prepare a cash budget for four months from January to April.
OR
8 a Write short notes on i) Steps in involved in receivable management ii) 8
Formulation and execution of the collection policy.
b Elaborate the factors affecting inventory management and costs associate with 7
receivable management
c A firm sells its products for Rs.10/- per unit of which Rs.7/- represents variable 5
costs. Current annual sales are Rs.12,00,000/- entirely on sales. The firm is
considering a more liberal extension of credit which will result in slowing the
process of average collection period from one month to two months. This
relaxation in credit terms is expected to produce a 25% increase in sales
i.e.,15,00,000/-. Advice the firm regarding adoption of new credit policy assuming
that the firm’s required rate of investment is 25%.
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