1. Determining the net working capital (NWC) requirement of the company for the current year. Strong Cement Company Ltd

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1. Determining the net working capital (NWC) requirement of the
company for the current year. Strong Cement Company Ltd has an
installed capacity of producing 1.25 lakh tonnes of cement per
annum; its present capacity utilisation is 80 per cent. The major
raw material to manufacture cement is limestone which is obtained
from the company's own mechanised mine located near the plant. The
company produces cement in 300 kgs bags. Cost structure per
bag of cement (estimated) Items Rs. Gypsum 25 Limestone 15 Coal 30
Packing material 10 Direct labour 50 Factory overheads (including
depreciation of Rs 10) 30 Administrative overheads 20 Selling
overheads 25 Total cost 205 Profit margin 45 Selling price 250 Add:
Sale tax (10 per cent of selling price) 25 Invoice price to
consumers 275 Additional information: (i) Desired holding period of
raw materials: Gypsum, 3 months Limestone, 1 month Coal, 2.5 months
Packing material, 1.5 months (ii) The product is in process for a
period of 0.5 month (assume full units of materials, namely gypsum
limestone and coal are required in the beginning; other conversion
costs are to be taken at 50 per cent). (iii) Finished goods are in
stock for a period of 1 month before they are sold. (iv) Debtors
are extended credit for a period 3 months. (v) Average time lag in
payment of wages is approximately 0.5 month and of overheads, 1
month. (vi) Average time lag in payment of sales tax is 1.5 months.
(vii) The credit period extended by various suppliers are: Gypsum,
2 months Coal, 1 month Packing material, 0.5 month. (viii) Minimum
desired cash balance is Rs last two 40 lakh. You may state
your assumptions, if any.