Solution:

Manufacturing Business cycle:

• The manufacturing cycle starts with the purchase and use of raw materials and completes with the production of finished goods.

• The longer the manufacturing cycle, the larger will be the firm’s working capital retirements. An extended manufacturing period means a larger tie-up of funds in inventories.

• Thus, if there are alternative ways of manufacturing a product, the process with the The shortest manufacturing cycle should be chosen.

• Once a Manufacturing process has been selected, it should be ensured that the manufacturing cycle is completed within the specified period.

  -This needs proper planning and coordination at all levels of activity. Any delay in the manufacturing process will result in an accumulation of work in the process and a waste of time.

• To minimize their investment in working capital, some firms, specifically, the firms manufacturing industrial products have a policy of asking for advance payments from their customers.

Business Fluctuation:

-Most firms experience seasonal and cyclical fluctuations in the demand for their products and services.

• These business variations affect the working capital. requirements, especially the temporary working capital requirements of the firm.

• When there is an upward swing in the economy, sales will increase; correspondingly, the firm’s investment in inventories and book debts will also increase.

• Under the boom, additional investment in fixed assets may be made by some firms to increase their production capacity. This act of the firms will require further addition to working capital.

• To meet their requirements of funds for fixed assets and current assets during the boom period, the firms generally resort to substantial borrowings.

  

• On the other hand, when there is a decline in the economy, sales will fall and consequently, the levels of inventories and book debts will also fall.

• Under recessionary conditions, the firms try to reduce their short-term borrowings.

• Seasonal fluctuations not only affect the working capital requirement but also create production problems for the firm.

• During the periods of peak demand, increasing production may be expensive for the firm: Similarly, it will be more expensive during slack periods when the firm has to sustain its workforce and physical facilities without adequate production and sales.

• A firm may, thus, follow a policy of steady production, irrespective of the seasonal changes, to utilize its resources to the fullest extent.

• Such a policy will mean the accumulation of inventories during the offseason and their quick disposal during the peak season.

• The increasing levels of inventories during their slack the season will require increasing funds to be tied up in the working capital for some months.