Page 167 - DMGT409Basic Financial Management

Basic Financial Management

Notes
Example: Following table shows hypothetical collection matrix.

Percentage of Receivables collected During the April May June July August
Sales (Rs. Lakhs) 350 340 320 300 250
Month of Sales 10 12 14 11 08
First Month following 30 38 40 30 34
Second Month following 25 24 22 20 21
Third Month following 20 26 22 19 18
Fourth Month following 15 10 02 15 20
Fifth Month following – – – 05 09
From the above table, it may be read for April sales are ` 350 lakhs. The pattern of collections
are 10 per cent in the same month (April), 30 per cent of sales in May, 25 per cent of sales in
June, 20 per cent of sales in July and the remaining 15 per cent in the August.

Task VST Co. produces plastic home appliances and it has annual credit sales of ` 20
lakhs, the average accounts receivables amount to `4,00,000. Compute ACP assuming 365
day year.

Case Study Yahoo. Products Limited
ahoo.. Products Limited manufactures a special variety of industrial which are used
by other manufacturing units to produce shoes and chappals. The market for the
Ycompany’s product comprises a few large public limited companies and a number
of small units run as proprietary or partnership concerns. The sales had in the past proved
to be seasonal, with peak sales being recorded in the period January to July (year).
One year back, the company had expanded its production capacity form 4,000 to 9,000 MT

per annum. However, the actual production in the financial year Just ended was restricted
to 6,000 MT, mainly on account of lack of orders. The cost statement for the year indicated
the following:
`/MT

Raw Materials (V) 2,500
Direct Labour and Supervision (F) 800
Indirect Materials, Fuel, etc. (F) 500
Depreciation, Insurance, etc. (F) 2,700

Factory Cost of Production 6,500
Administration, Selling and Interest Charges (F) 500
Selling Price per MT 7,000
(exclusive of all discounts, allowance for freight, etc.) ------

Dr. Bhatt the Director was not satisfied by the under utilization of installed capacity and

its effect on the profitability of the company. He called his senior managers to discuss

the situation and means of improving the profitability of the concern. The Sales Manager,
Contd....

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