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Course: Master of Business Administration
Q&A of Mba MS-41 Solved Assignment 2017 - Working Capital Management
Q. As a Finance Manager describe the various factors that you would take into consideration before assessing the working capital requirements.
The Average Monthly Usage of a particular item in Reliable Industries Limited in the current year is expected to be 3000 units. The fixed cost per order is Rs. 1500/-. The purchase price is Rs. 2400 per box, containing a dozen units in each box. It, however, is not necessary to order for the full box of 12 units. The inventory carrying cost is 25% of the inventory value per annum. The quantity discount allowed per unit is 2%.
What will be the Optimum Order Quantity in each of the following three cases, on an Annual Usage Basis:
When the minimum order size required for quantity discount is:
(a) 1000 units
(b) 3000 units
(c) 10,000 units
Give reasons for your specific answers in each of three cases separately, duly supported by facts and figures.
Q. "Trade credit is regarded as a spontaneous source of short term finance", discuss and comment.
Q. The management of Royal Industries has called for a statement showing the working capital to finance a level of activity of 1,80,000 units of output for the year. The cost structure for the companyís product for the above mentioned activity level is detailed below:
Cost per unit
Raw material Rs. 20
Direct labor 5
Overheads (including depreciation of Rs. 5 per unit) 15
Selling price 10
(a) Minimum desired cash balance is Rs. 20,000.
(b) Raw materials are held in stock, on an average, for two months.
(c) Work-in-progress (assume 50% completion stage) will approximate to half- a-monthís production.
(d) Finished goods remain in warehouse, on an average, for a month.
(e) Suppliers of materials extend a monthís credit and debtors are provided two monthís credit; cash sales are 25% of total sales.
(f) There is a time-lag in payment of wages of a month; and half-a-month in the case of overheads.
From the above facts, you are required to prepare a statement showing working capital requirements.
Q. Discuss the critical decisions that you need to take in working capital management. Emphasize the important ways in which those decisions differ from those concerned with the management of the fixed capital of a business.
Product Details: MS-41 Solved Assignment 2017 - Working Capital Management
Course: Ignou MBA (Master of Business Administration)
Session: Jan - June 2017
Old Sample Answers of Mba Ignou MS-41 Assignments
Q. What is Working Capital?
Answer. Working capital is a measure of a company's current assets less its current liabilities........... The management of working capital is a crucial element of cash flow management......
Managing working capital is essential for success, as the ability to avoid a cash crisis and pay debts as they fall due depends on managing
Receivables, through effective credit approval, invoicing, and collection activity
Inventory, through effective ordering, storage, and identification of inventory
Payables, by negotiation of trade terms and through taking advantage of prompt-payment discounts
Cash, by effective forecasting, short-term borrowing, and/or investment of surplus cash where possible
The working capital cycle works (at least in theory) as follows: a firm will purchase inventory (either as finished goods or as raw materials) on credit from its suppliers (appearing as creditors in the working capital)...... After production has taken place the finished goods will be sold on to customers as either cash or credit sales (now appearing as trade receivables in the working capital)........... The firm will eventually receive the cash from these credit customers, which in turn can then be used to settle the amounts owing to the credit suppliers as well as any other obligations it has run up during this period, such as wages and other expenses.......... Get Ignou Mba MS-41 Solved Assignment 2017 Jan - June Working Capital Management..........
A firm will wish to minimize the length of its working capital cycle. The longer a firm holds inventories and the longer a firm takes to collect cash from its customers in respect of credit sales, the more likely a firm will face liquidity problems........ Therefore a firm will want to minimize the time cash is tied up in working capital, so as to avoid potential difficulties with cash flow.
The working capital cycle (also known as the firmís operating cycle) can also be measured in terms of the time taken for money to pass through each stage of the working capital. The operating cycle for its working capital will consist of the following timings for cash being tied up in the various stages of the working capital cycle.........
The objective of working capital management by all the firms is to provide enough liquidity so that production process continues smoothly during the normal course of the business.......... Further, the focus is to maintain an optimum level of current assets so that funds of the firm do not remain unnecessarily idle.......... The finance manager aims at efficiently managing the current assets and liabilities to meet the firmís working capital requirement. Inefficient working capital management may lead to higher cost of funds and may increase the risk profile of the firm.