Attempt all the problems. 

Section-A   

problem1) What is carrying cost and shortage cost? Which policy is recommended if shortage cost is relatively lower than carrying cost and vice versa? Describe the policies followed in maintaining working capital with suitable exs.

problem2) How do you evaluate a proposed credit policy? How does the value of a credit policy change in case the new policy earns a repeat customer? Describe with suitable exs.

problem3) What are the techniques used to accelerate collections in the area of cash management. Describe with a case study.

problem4) What are the various kinds of expansion and contraction policies used by firms? Describe with appropriate ex.

Section-B

Pickles Ltd. produces the single product sold throughout the state of Tamil Nadu. Its profit analysis is given below:

Per Unit( Rs)
Selling Price                        40                       
Variable costs        36                           
Fixed cost               3       -39                       
Net profit per unit               1

Pickles Ltd. has the annual turnover of 4.8 million and an average collection period for debtors of one month. It has conducted a study on entering its neighbouring state Kerala and believed that this will produce an extra sale of 25%. But new business will require a 3 months credit period. Stocks and creditors will rise by Rs.4,00,000 and Rs. 2,00,000 respectively. Cost of financing any increase in working capital is 10 percent

The problem of whether profits increases as the result of expansion into Kerala markets very much rests on whether the existing Tamil Nadu customers also demand more favorable term.

Case problems:                   

problem1) What will be the profit increase in case only new customers take 3 months  credit.

problem2) What will be the profit if all customers take 3 months credit.