WORKING CAPITAL MANAGEMENT

Q1. Working Capital Estimate Level of Activity = 1,040,000 units Selling Price = PKR 20 per unit Raw Material Cost = PKR 8 per unit Labor Cost = PKR 3 per unit Overhead Cost = PKR 6 per unit Raw Material in Stock = 4 weeks Processing Time = 2 weeks Finished Goods in stock = 3 weeks Credit received from customer is 8 weeks Credit received from supplier is 6 weeks Delay in payment of wages is 4 weeks Delay in payment of overheads is 5 weeks Prepaid Expenses = PKR 20,000 Outstanding Expenses = PKR 50,000 Contingency is 5% of Gross Working Capital Calculate GWC, NWC and length of the Working Capital Cycle? Q2. The ABC Company has just put up a plant for the production of widgets. At the present moment they are trying to estimate how much money they will require as working capital to run the factory. They have gathered the following information about the widget industry: Level of activity for the year is 200,000 units. Selling Price per unit is Rs.12. Raw Material Cost is 40% of selling price. Labor Cost is 20% of selling price. Overhead Cost is 20% of selling price. Raw Material in store is 1 month Work in process is half a month. Finished Goods is one and a half-month. Credit to customer is 2 months. Credit from supplier is 1 month. Lag in payment of wages is half a month. Lag in payment of overheads is half a month. Insurance expense of Rs. 50,000 was outstanding at the end of the year. Rent was prepaid to the tune of Rs. 26,000. Based on this information please make simple working capital estimation for gross working capital and net working capital. Please take a 5% contingency on Gross Working Capital. Also calculate the length of the working capital cycle.

Q3. While preparing a project on behalf of a client you have collected the following facts.

Estimate the net working capital required for that project. Add 10% to your computed figure to allow contingencies: Particulars Estimated cost per unit of prodution: Raw material Direct labour Overheads (exclusive of dep, Rs 10 per unit) Total cash cost Additional information:
Selling price, Rs 200 per unit Level of activity, 104,000 units of production per annum Raw materials in stock, average 4 weeks Work in progress (assume 50% completion stage in respect of conversion costs and 100% completion in respect of materials) average 2 weeks Finished goods in stock, average 4 weeks Credit allowed by suppliers, average 4 weeks Credit allowed to debtors, average 8 weeks Lag in payment of wages, average 1.5 weeks Cash at bank is expected to be, Rs 25,000 You may assume the production is carried on evenly throughout the year (52 weeks) and wages and overheads accrue similarly. All sales are on credit basis only.

Amount per unit 80 30 60 170