1. Chandrasekar is running a company manufacturing and selling electronic toy with the installed capacity of 1,00,000 quantities per annum. It is currently selling at 75,000 units. The cost sheet is given below:
a. Price per unit ?200
b. Variable cost per unit ?120
c. Fixed cost ?20,00,000
d. Interest ?12,00,000
e. Tax rate 35%
f. No. of outstanding shares 10,00,000
As per next year forecast there are two possibilities i) the selling will come down by 15,000 units ii) the selling may reach the full installed capacity. In each case, what contributed the profit or loss (Operating and financial leverages).
i. How will you use the degree of leverages to calculate new EBIT and new EPS?
ii. Now check with income statement the results are correct or not.
iii. Calculate the new DOL, DFL & DCL and comment
2. Priya Manufacturing Company has the following details.
Annual sales ?10,00,000
Cost of goods sold ? 8,00,000
Inventory conversion period 73 days
Receivable collection period 24 days
Payable deferral period 30 days
Minimum cash balance required ? 75,000
Calculate
i. Operating cycle
ii. Cash conversion cycle
iii. Net operating working capital required by the company.
iv If the company is able to reduce the Inventory conversion period to 65 days, Receivable collection period to 23 days and increases the Payable deferral period to 31 days, calculate the working capital savings by the company.