Page 248 - DMGT207_MANAGEMENT_OF_FINANCES

Unit 10: Working Capital Management

Self Assessment Notes

Fill in the blanks:
11. ………………. represents credit granted by suppliers of goods.
12. ………………. is an arrangement under which a customer is allowed to draw advance up
to a certain limit against credit granted by bank.



Case Study Creative Promotion Company

r. Bhatt is a young man of bright ideas. Although he is employed as an engineer
in one of the large engineering concerns in Lahore (Pakistan), he spends all his
Mspare time developing new products in his private laboratory at home.
Currently, he has commercially provided a domestic appliance called Lavex, which would
be a great convenience kitchen to help housewives. He is not interest in manufacturing
and selling his new products; his only interest in developing new products is to make
money by way of selling patent rights to some established concerns. However, he releases
that till he succeeds in selling the patent rights at the price he expects, he has to manufacture
and sell the new products on ad hoc basis so as to demonstrate the commercial superiority
of his products and thereby, to induce the parties to buy the patents from him. With this
objective, he is currently thinking of manufacturing and selling ‘Lavex’. He will not give
up his full-time job; he will supervise and guide ‘Lavex’ production and sales during his
spare time.
Bhatt has already spent 30,000 in developing the product. He proposes to buy the
component from other parties and keep the production activity to a minimum. The
minimum equipment required would cost 11,000. He would need to rent a small place for
1,200 per month for production. He proposes to use his residence as office for sales activity.
Bhatt proposes to introduce the product in Chennai city only. His sales projections are as
follows:
January 60
February 40
March 110
April 140
May 220
June 180
He is not interested in pushing sales beyond 220 units per month as he cannot cope with
the production. He has budgeted 20,000 for sales promotion, which will be spent mostly
for demonstration in leading department stores in the city. The promotion budget is
scheduled as follows :

January 7,000
February 7,000
March 3,000
April 3,000
Contd...

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