Answer any FOUR.

1. The data of ABC Ltd. Is as under:

Production for the year
69,000
Credit given to
3 months
units
debtors
Finished goods inventory
3 months
Selling price per unit Rs. 50 each
Raw material inventory
2 months
Raw material
50% of Selling price
Production process
1 month
Direct wages
10% of Selling Price
Credit allowed by creditors
2 months
Overheads
20% of Selling Price
There is regular production and sales cycle, and wages and overheads accrue evenly. Wages are paid in the next
month of accrual. Material is introduced in the beginning of production cycle. Work-in-process involves use of full
unit of raw materials in the beginning of manufacturing process and other conversion costs equivalent to 50%.
Find out the working capital requirement.
2. What is the concept of Operating cycle? why is it important in working capital management? Give a suitable
example to illustrate the Operating cycle concept.
3. What are the reasons for prolonged Operating cycle? How can we reduce Operating cycle?
4. a) What are the motives for holding cash?
b) What do you understand by playing the float?
5. Write notes on Baumol model and Miller-Orr cash management model.
6. X Ltd. feels a Lock Box system (LBS) would reduce its debtors collection period by 2 days. The average number
of daily payments is 50. Credit sales are Rs. 8,000 billed on a continuous basis. However, the cost of renting the
Lock Box is Rs. 3,000 per annum. The bank charges for operating the LBS are Rs. 72,000. The interest is 15%.
Should the system be introduced?
7.

Briefly explain the factors which have an important bearing on working capital needs of the firm?

Answer any FOUR.

1. The data of ABC Ltd. Is as under:
Production for the year
69,000
Credit given to
3 months
units
debtors
Finished goods inventory
3 months
Selling price per unit Rs. 50 each
Raw material inventory
2 months
Raw material
50% of Selling price
Production process
1 month
Direct wages
10% of Selling Price
Credit allowed by creditors
2 months
Overheads
20% of Selling Price
There is regular production and sales cycle, and wages and overheads accrue evenly. Wages are paid in the next
month of accrual. Material is introduced in the beginning of production cycle. Work-in-process involves use of full
unit of raw materials in the beginning of manufacturing process and other conversion costs equivalent to 50%.
Find out the working capital requirement.
2. What is the concept of Operating cycle? why is it important in working capital management? Give a suitable
example to illustrate the Operating cycle concept.
3. What are the reasons for prolonged Operating cycle? How can we reduce Operating cycle?
4. a) What are the motives for holding cash?
b) What do you understand by playing the float?
5. Write notes on Baumol model and Miller-Orr cash management model.
6. X Ltd. feels a Lock Box system (LBS) would reduce its debtors collection period by 2 days. The average number
of daily payments is 50. Credit sales are Rs. 8,000 billed on a continuous basis. However, the cost of renting the
Lock Box is Rs. 3,000 per annum. The bank charges for operating the LBS are Rs. 72,000. The interest is 15%.
Should the system be introduced?
7.

Briefly explain the factors which have an important bearing on working capital needs of the firm?

Answer any FOUR.

1. The data of ABC Ltd. Is as under:
Production for the year
69,000
Credit given to
3 months
units
debtors
Finished goods inventory
3 months
Selling price per unit Rs. 50 each
Raw material inventory
2 months
Raw material
50% of Selling price
Production process
1 month
Direct wages
10% of Selling Price
Credit allowed by creditors
2 months
Overheads
20% of Selling Price
There is regular production and sales cycle, and wages and overheads accrue evenly. Wages are paid in the next
month of accrual. Material is introduced in the beginning of production cycle. Work-in-process involves use of full
unit of raw materials in the beginning of manufacturing process and other conversion costs equivalent to 50%.
Find out the working capital requirement.
2. What is the concept of Operating cycle? why is it important in working capital management? Give a suitable
example to illustrate the Operating cycle concept.
3. What are the reasons for prolonged Operating cycle? How can we reduce Operating cycle?
4. a) What are the motives for holding cash?
b) What do you understand by playing the float?
5. Write notes on Baumol model and Miller-Orr cash management model.
6. X Ltd. feels a Lock Box system (LBS) would reduce its debtors collection period by 2 days. The average number
of daily payments is 50. Credit sales are Rs. 8,000 billed on a continuous basis. However, the cost of renting the
Lock Box is Rs. 3,000 per annum. The bank charges for operating the LBS are Rs. 72,000. The interest is 15%.
Should the system be introduced?
7.

Briefly explain the factors which have an important bearing on working capital needs of the firm?