Caclulate Operating Cycle for the co with given data:

Data given for 365 days

Avg credit period enjoyed by the Co from its Suppliers = 16 days 16

Rs '000
Avg debtors outstanding 480
Raw mtl consumed in the yr 4,400
Total production cost 10,000
Admin expenses 300
Selling expenses 200
Sales for the yr 16,000
Value of stock of:
RM 320
WIP 350
Finished goods 260

Solution:
RM days= 320/4400x365 27
WIP days= 350/10,000x365 13
FG days= 260/10,500x365 9 COGS=COGM+Admin exp+selling exp
Receivables days=480/16,000*365 11 FG days = FG stock/COGS*365=260/10,500x365
Total 59
Less: Payables days 16
Operating Cycle = 43 days

i.e. on average, the co converts its raw material purchases into cashflow from sales within 43 days
 10,500
*365=260/10,500x365

within 43 days
Estimate NWC for the co with following data: Assume 1 year = 52 weeks
Sales volume = no of units = 104,000 Cash balance to be maintd
1/4th of sales on cash basis, balance on credit Stock days: (in weeks)
Cost sheet per unit: Raw mtl 4
RM 80 WIP (50% completion) 2
Direct labour 30 Finished goods 4
Mfg Overhead 60 Credit received on purchases 4
Total mfg cost 170 Credit allowed on sales 8
Profit 30 Wages paid after 1.5
Selling price 200 Overhead costs paid after 4
Also assume safety margin 10%
Solution:
Current Assets: (In Rs)
RM = Annual cost of RM x stock of RM = 1,04,000x80x4/52 640,000
WIP: % completion = 50%
RM = 1,04,000x80x2/52x50% 160,000
Labour = 1,04,000x30x2/52*50% 60,000
Overheads= 1,04,000x60x2/52x50% 120,000
Total value of WIP 340,000
Finished goods=COGMx4 weeks= 1,04,000x170x4/52 1,360,000
Receivables=COGSx8/52
Credit sales is 75% of total, = 1,04,000x.75= 78,000 units
Hence receivables=78,000x170x8/52 2,040,000
Cash balance required 365,000
TOTAL CURRENT ASSETS 4,745,000

LESS: Current liabilities

Payables 1 month of RM=1,04,000x80x4/52 640,000
Wages paid in arrears=1,04,000x30x1.5/52 90,000
Other overheads paid in arrears=1,04,000x60x4/52 480,000
TOTAL CURRENT LIABILITIES 1,210,000

NWC 3,535,000
Add: Safety margin 353,500
NET WORKING CAPITAL REQUIRED 3,888,500
= 52 weeks
365,000

weeks
weeks
weeks
weeks
weeks
weeks
weeks
Find NWC for the following co:
Data given for a new co., with no opening stock

Sales 2,100,000 Calculation of COGS

COGS 1,530,000 Material cost
Gross Profit 570,000 Wages and mfg expenses
Admin exp 140,000 Depreciation
Selling exp 130,000 Total
Operating Profit 300,000 Less unsold FG: 10%
COGS
Stock of RM 2 months
Stock of WIP= 15% of production
WIP calculated as 100% RM + 40% other expenses
Cash balance Rs 40,000
Payables for raw mtls 1.5 month
All Expenses are paid after 1 month
Of total sales, 20% are on cash basis, rest on 2 months credit

Solution
Current Assets
Raw matls= 8,40,000x2/12 140,000
WIP:
RM=8,40,000x15% 126,000
Wages and expenses=6,25,000x40%x15% 37,500
Total WIP 163,500
Finished goods is 10%, adjust depreciation (1,70,000-23,500) 146,500

COGM 1,530,000
Less: 90% of depreciation 211,500
Cash cost of goods mfd 1,318,500
Add admin exp 140,000
Selling exp 130,000
COGS 1,588,500

Debtors=COGS x % credit sales x 2/12=15,88,500 x 80% x 2/12 211,800

Cash 40,000
Total Current Assets 701,800

Current liabilities
Payables for materials = 8,40,000x1.5/12 105,000
Credit period on all Expenses= 1 month
Wages and mfg expenses 625,000
Admin expenses 140,000
Selling expenses 130,000
Total expenses 895,000
Credit period on expenses 74,583
Total current liabilities 179,583

NWC 522,217
 840,000
625,000
235,000
1,700,000
170,000
1,530,000
Sales 2,700,000
Receivables 2 months
GPM=20%, where total mfg cost INCLUDES depreciation 20%
RM and FG stock = 1 month
Annual Wages, payable at end of each month 540,000
Mfg expenses outstanding at end of yr = 60,000 (1 month expense)
Sales promotion exp paid quarterly in advance 90,000
Mtls consumed 675,000
Payables 2 months
Annual Admin exp, payable at end of each month 180,000
Ignore WIP
Estimate NWC requirement including 15% safety margin
Cash balance = 50% of current liabilities

Solution
Calculation of COGM and COGS Current Assets
Sales 2,700,000 RM=6,75,000*1/12
Less:Profit 540,000 FG=19,35,000*1/12
COGM 2,160,000 Receivables=22,05,000*2/12
Less: mtl cost 675,000 Sales prom exp=90,000*3/12
Less: wages 540,000 Cash balance= CL x 0.5 =
Manufacturing cost 945,000 Total Current Assets
Cash manufacturing expenses=12x60,000 720,000
So, the Balance is depreciation 225,000 Current liabilities
So, cash cost of mfg=COGM-Deprcn= 1,935,000 Payables for mtls=6,75,000x2/12
Cash cost of Goods Sold=COGM+admin+selling exp Wages in 1 month =5,40,000x1/1
Admin exp 180,000 Mfg expenses outstanding is give
Sales exp 90,000 Admin exp = 1,80,000*1/12
Total COGS 2,205,000 Total current liabilities

NWC
Add 15% safety margin

Requirement of NWC
Current Assets
RM=6,75,000*1/12 56,250
FG=19,35,000*1/12 161,250
Receivables=22,05,000*2/12 367,500
Sales prom exp=90,000*3/12 22,500
Cash balance= CL x 0.5 = 116,250
Total Current Assets 723,750

Current liabilities
Payables for mtls=6,75,000x2/12 112,500
Wages in 1 month =5,40,000x1/12 45,000
Mfg expenses outstanding is given as 60,000 60,000
Admin exp = 1,80,000*1/12 15,000
Total current liabilities 232,500

491,250
Add 15% safety margin 73,688

Requirement of NWC 564,938