Question

Clinton Summerhayes is CFO for a newly formed golf club manufacturing company. Below is the anticipated monthly production for the first year of operation, and beyond. Clinton is interested in learning which of the first twelve months will require cash outlays of more than $25,000 toward the purchase of composite shafts. Each unit requires 4 board feet of composite material at $15.70 per board foot. All composite material is purchased in the month prior to its expected use. Composite shaft purchases are paid for 15% in the month of purchase, 80% in the month following the month of purchase, and 5% in the second month following the month of purchase. Units Month January February March April May June July August September October November December January 160 240 Which months will require cash outlays in excess of the $25,000 amount? Does the production in any given month necessarily correspond to the cash flow for that same month? What are the business implications of your observation?

Answer 1

June July 520 Feb 320 1,280 800 Mar 200 800 1,200 Apr 300 1,200 2,080 May 520 2,080 2,080 Aug 350 1,400 1,280 400 1,600 1,400 Sep 320 1,280 880 Oct 220 880 640 Nov 160 640 Dec 160 640 Jan 240 960 2,080 1,600 640 960 Particulars Jan Units - Mat Req (4 board per unit) Mat. Purch 1 month prior 1,280 Price of mat purchase @$15.70 $20,096.00 15% payment same month $ 3,014.40 80% payment next month 5% payment 3rd month $ 3,014.40 $12,560.00 $18,840.00 $ 1,884.00 $ 2,826.00 $ 16,076.80 $10,048.00 $ 1,004.80 $ 17,960.80 $13,878.80 $32,656.00 $ 4,898.40 $15,072.00 $ 628.00 $20,598.40 $32,656.00 $ 4,898.40 $ 26,124.80 $ 942.00 $31,965.20 $25,120.00 $21,980.00 $20,096.00 $ 3,768.00 $ 3,297.00 $ 3,014.40 $26,124.80 $20,096.00 $17,584.00 $ 1,632.80 $ 1,632.80 $ 1,256.00 $31,525.60 $25,025.80 $21,854.40 $13,816.00 $10,048.00 $ 2,072.40 $ 1,507.20 $ 16,076.80 $11,052.80 $ 1,099.00 $ 1,004.80 $ 19,248.20 $13,564.80 $10,048.00 $15,072.00 $ . $ 1,507.20 $ 2,260.80 $ $ 8,038.40 $ 8,038.40 $12,057.60 $ 690.80 $ 502.40 $ 502.40 $10,236.40 $10,801.60 $12,560.00 Therefore, May, June and July will require a cash Outlay in excess of $25,000

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