From the following particulars, compute (i) Net operating cycle period (ii)number of operating cycles in a year (iii) The amount of working capital. Period covered – 360 days Average period allowed by suppliers – 30 days Average period allowed to debtors – 45 days Raw material consumed during the year – Rs.6,00,000 Average stock of raw materials – Rs.50,000 Work in progress = Rs.5,00,000 Average work in progress inventory= 30,000 Finished goods = Rs.8,00,000 Average finished goods stock held = Rs.40,000 Total cost of sales = Rs.8,40,000

Computation of Net operating cycle: Raw materials held in stock : Avg.stock of materials Avg.consumption per day – 50,000/ 1667 – 30 days (6,00,000 / 360 days – 1667) Work in progress : Average WIP / Avg.consumption per day - 30,000/1388 - 22 days (500000/360 days – 1388) Finished goods held in stock : Avg.finished goods/Avg cost of goods sold per day -40,000/2222 –18 days (8,00,000 / 360 days – 2222) Credit period to debtors - 45days ------------ 115 days Average credit period allowed by creditors - 30 days Net operating cycle period - 85 days

ii. No. of operating cycles in a year = 360 / 85 = 4. 2 cycles iii ii.No.of operating cycles in a year = 360 / 85 = 4.2 cycles iii.Working capital required = Total cost of sales ------------------------------------------ No. of operating cycles in a year = Rs.8,40,000 / 4.2 = Rs.2,00,000

Percentage of sales method: In this method the level of working capital is decided on the basis of past experience. 1.The balance sheet of national steel ltd as on 31.3.2005 is as under: Liabilities Rs Assets Rs Share capital 200 Land and building 60 Reserves & Surplus 160 Plant & machinery 200 Term loans 120 Debtors 220 Sundry creditors 120 Inventories 200 Provision of taxation 60 Cash and bank 20 ------- -------- 700 700 The company’s turn over for 2004 – 2005 was 1200 lakhs. It anticipates a sales turn over of Rs.1800 lakhs in 2005 -06.Estimate the working capital requirement for 2005 -06.

Statement of working capital requirement for 2005 -06 % of sales based 2004 -05 2005 -0 6 on 2004 – 05 (Actuals) (Estimate) Sales 100 1200 1800 Current assets: Debtors 18.33 220 330 Inventories 16.67 200 300 Cash and bank 1.67 20 30 Total (A) 36.67 440 660 Current liabilities: Sundry creditors 10.00 120 180 Provision for Tax 5.00 60 90 Total (B) 15.00 180 270 Working capital (A –B) 21.67 260 390