Grow More Ltd. is presently operating at 60% capacity level, producing 36,000 units of a product per annum. In view of favourable market conditions, it has been decided that from 1st January, 2016, the company would oper

Grow More Ltd. is presently operating at 60% capacity level, producing 36,000 units of a product per annum. In view of favourable market conditions, it has been decided that from 1st January, 2016, the company would operate at 90% capacity. Following information is available: Existing cost-price structure per unit is : Raw material : ₹4 Wages : ₹2 Variable overheads : ₹1 Fixed overheads : ₹1 Profits : ₹1 It is expected that the cost of raw material, wages, overheads and sales per unit will remain unchanged in the year 2016. Raw material remain in stores for 2 months before being issued to production. These units remain in production process for one month. Finished goods remain in godown for 2 months. Credit allowed to debtors is 2 months while credit allowed by creditors is 3 months. Lag in wages and overheads payments is 1 month; it may be assumed that wages and overheads accrue evenly throughout the production cycle. Assume that the opening balance of raw material, work-in-progress and finished goods have already been brought to desired level. Consequently, goods purchased during the period will only be for the production requirement and not for increasing the level of stock. You are required to — (d) What is the direction to banks regarding determination of working capital credit?