Q.2 Stylish Garments Limited is new name in the garments industry. However, the company has captured the market share very rapidly due to its stylish garments at comparatively competitive prices. The company has just applied for working capital finance from a commercial bank. You are requested by the bank to prepare an estimate of the working capital requirements of the company. You may add 10% to your estimated figure to account for contingencies. The following is the firm's projected profit and loss account: RS. Sales 4,200,000 Cost of goods sold 3,060,000 Gross profit 1,140,000 Administrative expenses 280,000 Selling expenses 260,000 540,000 Profit before tax 600,000 Tax 35% 210,000 Profit after tax 390,000 The cost of goods sold has been calculated as follow. Rs. Materials used 1,680,000 Wages and other manufacturing expenses 1,250,000 Depreciation 470,000 3,400,000 Less: Stock of finished goods (10% product not yet sold) 340,000 Cost of goods sold 3,060,000 The figures given above relate only to the goods that have been finished and not to 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 material but only 40% of other expenses. The firm has a policy of keeping two months consumption of material in stock. Desired cash at bank is RS. 80,000. All expenses are paid one month in arrear. Suppliers of material grant one and a half month credit; sales are 20% cash while remaining sold on two (2) months credit. Required: Prepare an estimate of the requirements of the working capital for the Stylish Garments Limited. 12