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: -4Lovely 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-AQ1: A proforma cost sheet of a company provides the following particulars:

Particulars Amount per unitElements of cost:Raw materials Rs 80Direct labour 30Overhead 60Total cost 170Profit 30Selling price 200

The following further particulars are available:Raw materials in stock, on average, one month; Materials in process (completion stage, 50 per cent), onaverage, 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 inpayment 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 activityof 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 theoperating 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) 480Raw material consumption 4,400Total production cost 10,000

Total cost of sales 10,500Sales for the year 16,000Value of average stock maintained:Raw material 320Work-in-process 350Finished 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 unitsFinished goods in store, 3 monthsRaw material in store, 2 months’ consumptionProduction process, 1 monthCredit allowed by creditors, 2 monthsCredit given to debtors, 3 monthsSelling price per unit, Rs 50Raw material, 50 per cent of selling priceDirect wages, 10 per cent of selling priceManufacturing and administrative overheads, 16 per cent of selling priceSelling overheads, 4 per cent of selling priceThere 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-BQ4: 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 5000Stocks of stores, materials etc. 8000(ii) Average credit given:Inland Sales-6 weeks credit 312000Export sales-1.5 weeks credit 78000(iii) Lag in payment of wages and other outgoings:Wages-1.5 weeks 260000Stock of materials -1.5 months 48000Rent, Royalties- 6 months 10000Clerical Staff – 0.5 month 62400Manager-0.5 month 4800Misc 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 informationElements of cost Amount per unitRaw material 8Direct labour 2Overheads 6Selling 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 capitalRaw materialDirect labourOverheads (excluding depreciation) Total cost

400150300850

Other information:-Selling price Rs.1,000 per unitOutput 52,000 units per annumRaw material in stock Average 4 weeksWork in process:- (assume 50% completion stage with full material consumption)

Average 2 weeks

Finished goods in stock Average 4 weeksCredit allowed by suppliers Average 4 weeksCredit allowed to debtors Average 8 weeksCash at bank expected to be Rs.50,000Assume production is sustained at an even pace during 52 weeks. All sales are on credit basis