Page 72 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Unit 4: The Financing Mix

Solution Notes
(a) A – Current Assets: Amt. in `

(i) Raw material inventory - (1 month) - 12,00,000 units × 60× 1 60,00,000
12
(ii) Work-in-progress - production cycle 1 month

Raw material (added in the beginning) ` 60,00,000
Wages (12,00,000 10 1/2 ) × 50% = ` 5,00,000

Overheads 20 × 10,00,000 × 1 × 50% = ` 10,00,000
12

Total 75,00,000
(iii) Finished goods (inventory held for 2 months)
Total cost Material 60.00
Labour 10.00

Overheads 20.00 = 90 12,00,000× × 2
12

(iv) Debtors for 2 months 12,00,000× 90× ` 2 1,80,00,000
12
Total current assets 4,95,00,000

B – Current liabilities:
(v) Creditors for Raw Material -01 month

7,20,00,000 × 1 60,00,000
12
(vi) Creditors for wages

12,00,000 × 10 × 1 10,00,000
12
Total current liabilities 70,00,000
Net working capital 4,25,00,000

(b) Computation of Maximum permissible Bank Finance according to Tandon Committee
norms
st
1 Method `
CAs 4,95,00,000
CLs 70,00,000
Working capital gap 4,25,00,000
Less: 25% from long-term sources (1,06,25,000)
Max permissible Bank Finance 3,18,75,000

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