Page 159 - DMGT409Basic Financial Management

Basic Financial Management

Notes Average materials-in-process (50 per cent completion stage): half a month

Average finished goods in stock: one month

Credit allowed by suppliers: one month
Credit allowed to customers: two months
Time lag in payment of wages: one and half weeks
All sales are credit sales. Cash balance is expected to be ` 75,000. You may assume that
production is carried on evenly throughout the year and wages and overhead expenses
accrued similarly.

2. From the following information estimate working capital required for the level of activity
78,000 units. You may assume that production is carried on evenly throughout the year
and wages and overhead expenses accrue similarly and a time period of four weeks is
equivalent to a month.
Amount (per unit)
Raw materials 45
Direct labour 20

Overheads 37.5
Total cost 102.5
Profi t 22.5
Selling price 125

Additional information
Raw materials in stock: two weeks; Materials-in-process: one week; Finished goods in
stock: two weeks; Credit allowed by suppliers: half month; Credit allowed to customers:
four weeks; Overheads: two weeks; Cash at bank is expected to be `30, 000. 80% of sales
are credit sales.
3. You are requested by A.P. Paper Mills Limited to estimate working capital required for the
level of activity of 6,24,000 units of production. Add 5 per cent for safety. It provides the
following information. You may assume that production is carried on evenly throughout
the year and wages and overhead expenses accrued similarly and a time period of four
weeks is equivalent to a month.
Amount (per unit)

Raw materials 90
Direct labour 40
Overheads 80
Total cost 210

Profi t 60
Selling price 270
Additional Information
Raw materials in stock: one month; Materials-in-process: half month; Finished goods in
stock: four weeks; Credit allowed by suppliers: one month; Credit allowed to customers:
eight weeks; lag in payment of wages: one and half week; Overheads: one weeks; 20 per
cent of sales are cash sales and cash at bank is expected to be `60, 000.

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