Untitled-29

Working Capital Management^189

(v) Manager (Rs 4,800 ◊ 1/24) 200

(vi) Miscellaneous expenses (Rs 48,000 ◊ 3/24) 6,000

Total estimate of current liabilities 27,300

(c)Net working capital:

(i) Current assets-Current liabilities (A-B) 25,950

(ii) Add 10 per cent contingency allowance 2,595

Average amount of working capital required 28,545

Assumptions

(i) A time period of 52 weeks/12 months has been assumed in year.

(ii) Undrawn profit has been ignored in the working capital computation for the
following reasons:
(a) For the purpose of determining working capital provided by net profit, it is
necessary to adjust the net profit for income tax and dividends/drawings,
and so on.
(b) Profit need not always be a source of financing working capital. It may be
used for other purposes like purchase of fixed assets, repayment of long-
term loans, and so on; Since the firm does not seem to have such uses, Rs
11,000 may be treated as source of working capital. But the WC will not
change.

(iii) Actual working capital requirement would be more than what is estimated here
as the cash component of current assets is not known.

2. A Proforma cost sheet of a company provides the following particulars:

Amount per unit

Elements of cost:

Raw materials Rs 80

Direct labour 30

Overhead 60

Total cost 170

Profit 30

Selling price 200

The following further particulars are available:

Raw materials in stock, on average, one month; Materials in process (completion stage,
50 per cent), on average, 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;