Question

Working capital cash flow. Cool Water, Inc. sells bottled water. The firm keeps in inventory plastic bottles at 11% of the monthly projected sales. These plastic bottles cost $0.006 each. The monthly sales for the first four months of the coming year are as follows: January: 2,200,000 February: 2,200,000 March: 2,800,000 April: 3,100,000 What is the monthly increase or decrease in cash flow for inventory given that an increase is a use of cash and a decrease is a source of cash? Note: Enter a decrease as a negative number. What is the change in working capital for January? $1 | (Round to the nearest dollar.)

Answer 1

Sales units Desired ending inventory % of sales Desired ending inventory, units Cost per plastic bottle Desired ending inventory, dollars January February March 2,200,000 2,200,000 2,800,000 11% 11% 11% 242,000 242,000 308,000 $0.006 $0.006 $0.00 $1,452 $1,452 $1,848 April 3,100,000 --> (a) 11% -> (b) 341,000 --> (c) = (a) (b) $0.006 --> (d) $2,046 --> (c) x (d) Therefore, Change in working capital for January Change in working capital for February Change in working capital for March Change in working capital for April $1,452 [As it is the first month, it is equal to January's desired ending inventory calculated] $0 ($1452 - $1452] $396 ($1848 - $1452] $198 ($2046 - $1848]