LOVELY PROFESSIONAL UNIVERSITY ASSIGNMENT 4

Lovely School of Technology and Computer Application Name of the faculty member: Rohit Vij Course No: MGT 333 Session: E3001 Max. Marks: 15 (5+10)

Department of Management

Course Title: Basic Financial Management

Date of Submission: 19.04.11

Answer all Questions: 1. From the following, estimate the working capital requirements. Projected annual sales - Rs. 130 lakhs % of net profit on cost of sales 25% Average credit period allowed to debtors 8 weeks Average credit period allowed by creditors 4 weeks Average stock carrying 8 weeks Allow 10% for contingencies 2. From the following, estimate the working capital requirements. Expected level of production 120000 units Raw material to remain in stock 2 months Processing period for each unit of product 1 month Finished goods remain in stock 3 months Credit allowed to customers 3 months Expected ratios of cost to selling price: Raw material 60% Direct wages 10%

Overheads 20% Selling price per unit Rs. 10 Expected margin on sale 10% 3. The Cost sheet of A ltd. is as follows Cost per unit (Rs) Raw Materials 50 Labour 20 Overheads 30 Depreciation 10 Profit 10 Selling price 120 Average holding/realisation period is as follows Raw materials 1 month, Finished goods 1 month, creditors 2 month, Debtors 2 months. Assume that there is no working capital. Other information Expected output is 54,000 units per year. 4. The cost sheet of Hi-Tech Ltd. provides the following data: Rs Raw Material 30 Direct labour 20 Overheads (including depreciation of Rs.10) 20 -----Total Cost 70 Profit 10 -----Selling price 80 -----1) Average Raw material in stock is for 1 month 2) Work-in-progress (assume 50 % completion stage for Raw materials, wages and overheads) will approximate to 1/2 months production 3) Finished goods lie in the warehouse for 1 month 4) Credit allowed to Debtors is 1 month. 25 % of Sales are on cash basis. 5) Cash balance expected to be Rs.2,00,000.00 6) Credit allowed by suppliers is 1 month 7) Average time lag in payment of wages is 2 months 8) Average time lag in payment of overheads is 1 month 9) Assume a 10 % margin You are required to prepare a statement of the working capital needed to finance a level of the activity of 60,000 units of output per year. 5. The management of Royal Industries has called for a statement showing the working capital to finance a level of activity of 1,80,000 units of output for the year. The cost structure for the companys product for the above mentioned activity level is detailed below Rs Raw Material 20 Direct labour 5

Overheads (including depreciation of Rs.5) -----Total Cost Profit -----Selling price -----Additional information a. Minimum desired cash balance is Rs 20,000

15 40 10 50

b. Raw materials are held in stock for average period of 2 months c. Work in progress (assume 50% completion stage for all labour, material and overheads) will approximate to half months production. d. Finished goods remain in warehouse, on an average for a month e. Supplier for materials extend 1 months credit and debtors are given 2 months credit period. Cash sales are 25% of total sales f. There is a time lag in payment of wages of a month and half a month in case of overheads g. You are required to prepare a statement showing working capital requirements.