LOVELY PROFESSIONAL UNIVERSITY Form/LPUO/AP-

3
(The format to be used for Planning the academic activities other than
Lecturers/Tutorial/Practical like Assignments, Case study, Presentation, Quiz,
Projects, Class tests, industrial visits, teaching practice, court visits etc. to be
undertaken as a part of the continuous assessment for the Course)
ACADEMIC ACTIVITY NO: -4
Lovely School of Management Department of Managemant
Name of the faculty member: Vishal Chopra
Course No: MGT517 Course Title: Financial Management
Class: MBA Semester: 2nd Section:S1006 Batch: 2010
Max. Marks: 5 Date of Allotment: 20-04-11 Date of Submission: 26-04-11

Part-A
Q1: A proforma cost sheet of a company provides the following particulars:
Particulars Amount per unit
Elements of cost:
Raw materials Rs 80
Direct labour 30
Overhead 60
Total cost 170
Profit 30
Selling price 200
The following further particulars are available:
Raw materials in stock, on average, one month; Materials in process (completion
stage, 50 per cent), on
average, half a month; Finished goods in stock, on average, one month.
Credit allowed by suppliers is one month; Credit allowed to debtors is two months;
Average time-lag in
payment of wages is 1.5 weeks and one month in overhead expenses; one-fourth of
the output is sold against cash; cash in hand and at bank is desired to be mantained at
Rs 3,65,000.
You are required to prepare a statement showing the working capital needed to
finance a level of activity
of 1,04,000 units of production. You may assume that production is carried on evenly
throughout the year, and wages and overheads accrue similarly. For calculation
purposes, 4 weeks may be taken as equivalent to a month.

Q2: From the following information, extracted from the books of a manufacturing
company, compute the
operating cycle in days:
Period covered: 365 days Average period of credit allowed by suppliers, 16
days
Other data are as follows:
(Rs ’000)
Average debtors (outstanding) 480
Raw material consumption 4,400
Total production cost 10,000
Total cost of sales 10,500
Sales for the year 16,000
Value of average stock maintained:
Raw material 320
Work-in-process 350
Finished goods 260

Q3: You are supplied with the following information in respect of XYZ Ltd for the
ensuing year:
Production of the year, 69,000 units
Finished goods in store, 3 months
Raw material in store, 2 months’ consumption
Production process, 1 month
Credit allowed by creditors, 2 months
Credit given to debtors, 3 months
Selling price per unit, Rs 50
Raw material, 50 per cent of selling price
Direct wages, 10 per cent of selling price
Manufacturing and administrative overheads, 16 per cent of selling price
Selling overheads, 4 per cent of selling price
There is a regular production and sales cycle and wages overheads accrue evenly.
Wages are paid in the next month of accrual. Material is introduced in the beginning
of the production cycle. You are required to ascertain its working capital requirement.

Part-B
Q4: XYZ Co.is desirous to purchase a business and has consulted you and one point
on which you are asked to advise them on the average amount of working capital that
will be required in the first year’s working. You are required to add 10%
contingencies to your computed figure. Set up calculations for average amount of
working capital required.

Figures for the year(Rs.)

(i) Amount blocked up for stocks:

Stocks of finished goods 5000
Stocks of stores, materials etc. 8000
(ii) Average credit given:
Inland Sales-6 weeks credit 312000
Export sales-1.5 weeks credit 78000
(iii) Lag in payment of wages and other outgoings:
Wages-1.5 weeks 260000
Stock of materials -1.5 months 48000
Rent, Royalties- 6 months 10000
Clerical Staff – 0.5 month 62400
Manager-0.5 month 4800
Misc Expenses-1.5 months 48000
(iv) Payment in advance:
Sundry expenses (paid quarterly in advance) 8000
(v) Undrawn profit on average throughout year 11000

Q5: You are required to prepare for the Board of directors of vigilant co. ltd. A
statement showing the working capital needed to finance a level of activity of 5200
units of output P.A. you are given following information
Elements of cost Amount per unit
Raw material 8
Direct labour 2
Overheads 6
Selling price of the product is Rs. 20. Raw materials are in stock on average for one
month. Materials are in process on average half a month. Finished goods are in stock
on average six weeks. Credit allowed by suppliers is for one month. Credit allowed to
customers is for two months. Lag in payment of wages is 1.5 weeks. Cash on hand
and at bank is expected to be Rs. 7300.
You are informed that production is carried on evenly during the year, and wages and
overheads accrue similarly.

Q6: From the following estimate requirement for net working capital
Raw material 400
Direct labour 150
Overheads (excluding depreciation) 300
Total cost 850
Other information:-
Selling price Rs.1,000 per unit
Output 52,000 units per annum
Raw material in stock Average 4 weeks
Work in process:- (assume 50%
completion stage with full material Average 2 weeks
consumption)
Finished goods in stock Average 4 weeks
Credit allowed by suppliers Average 4 weeks
Credit allowed to debtors Average 8 weeks
Cash at bank expected to be Rs.50,000
Assume production is sustained at an even pace during 52 weeks. All sales are on
credit basis