Question
The Finance Department Domestic Gas Needs is studying the value chain of its proposed LPG Bottling Plant. The following information is gathered. The Company purchases
The Finance Department Domestic Gas Needs is studying the value chain of its proposed LPG Bottling Plant. The following information is gathered. The Company purchases LPG in bulk at a cost of Rs 15,000 per MT. This is transported to its Bottling Plant through 20 MT capacity trucks hired on an annual contract basis. All the LPG purchases in a month are settled on the 15th of the following month. The average transportation cost per truck is Rs 50,000. Normally, 3 trucks per day are received at the plant. The monthly transportation charges are paid on 10th of the following month. The plant is capable of bottling 50 MT LPG per day. There will be a 10% normal loss of LPG in the bottling process. The plant operates for 30 days per month on an average. All the filled cylinders are dispatched to the dealers on the same day. (25) The LPG is supplied by the company in 15 kg cylinders, invoiced at Rs.600 per cylinder. A commission of 5% per cylinder is paid to the distributor on the invoice price. The cylinder transportation cost is Rs.30 per cylinder. Monthly Cylinder transportation charges are paid on the 15th of following month. The Dealers are given a credit of 30 days to settle the dues. The direct labor cost of bottling is Rs.6.50 per cylinder. All payments to labor are made at the end of the month. Monthly overheads are estimated to be Rs. 550,000. All overhead payments for a month are made on the 10th of the following month.
Required: Determine the Working Capital Gap for the proposed Bottling Plant.
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