A newly formed firm has applied for a loan to a commercial bank. Estimate working

capital requirements for the firm with an addition of 10% for contingencies. The

information about the project profit and loss account of the company is as follows:

Particulars Amount in Rs.

Sales 4,200,000

Less: Cost of Goods Sold 3,060,000

Gross Profit 1,140,000

Administrative Expenses 280,000

Selling Expenses 260,000

Profit Before Tax 600,000

Provision for Tax 200,000

Profit After Tax 400,000

Details of Cost of Goods Sold:

Materials Used 1,680,000

Wages and Manufacturing Expenses 1,250,000

Depreciation 470,000

Total 3,400,000

Less: Stock of Finished Goods (10 per cent not yet sold) 340,000

Net Cost of Goods Sold 3,060,000

The figures given above relate only to the goods that have been finished and not of work

in progress, goods equal to 15% of the year's production (in terms of physical units) are in

progress on an average, requiring full materials but only 40% of other expenses. Company

believes in keeping two months consumption of material in stock; desired cash balance for

the company is Rs. 80,000

Average time-lag in payment of all expenses is 1 month; suppliers of materials extend 1.5

months credit; sales are 20% cash; rest are at two months credit; 70% of the income tax

has to be paid in advance in quarterly instalments.