50. The W.M. Ltd. proposes to raise its turnover from Rs. 6,00,000 to Rs. 8,40,000 next year and to Rs. 9,60,00 in the succeeding year. It is expected that the purchases will go up from Rs. 1,80,000 to Rs. 2,40,000 and then to Rs. 2,70,000 in the next two years. A steady profit of 10% on turnover is estimated over the years, and the materials, labor and factory overheads are expected to be 30%, 20% and 30% respectively of the total cost of goods sold. At the end of each year, the raw material stock would amount to two months consumption, work-in-progress to one month's factory cost and finished goods to half a month's total cost. There is a two-month credit period allowed to customers and received from suppliers. The company has a policy of carrying costs equivalent to one month's requirement for payment of labor and other overhead cost. Ignoring repayments and accrued charges as they normally offset each other. Work out an estimate of working capital requirement for all the three years separately.

50. The W.M. Ltd. proposes to raise its turnover from Rs. 6,00,000 to Rs. 8,40,000 next year and to Rs. 9,60,00 in the succeeding year. It is expected that the purchases will go up from Rs. 1,80,000 to Rs. 2,40,000 and then to Rs. 2,70,000 in the next two years. A steady profit of 10% on turnover is estimated over the years, and the materials, labor and factory overheads are expected to be 30%, 20% and 30% respectively of the total cost of goods sold. At the end of each year, the raw material stock would amount to two months consumption, work-in-progress to one month's factory cost and finished goods to half a month's total cost. There is a two-month credit period allowed to customers and received from suppliers. The company has a policy of carrying costs equivalent to one month's requirement for payment of labor and other overhead cost. Ignoring repayments and accrued charges as they normally offset each other. Work out an estimate of working capital requirement for all the three years separately.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 23E: Assume that an investment of 100,000 produces a net cash flow of 60,000 per year for two years. The...

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