Question

4. 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 $0.004 each. The monthly sales for the first four months of the coming year are as follows: January: 2,300,000 February: 2,100,000 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? (Round to the nearest dollar.) What is the change in working capital for February? (Round to the nearest dollar.) What is the change in working capital for March? (Round to the nearest dollar.)

Answer 1

Cost of Bottles Sold = Monthly Projected Sales x $0.004

Opening Inventory = Current Month's Projected Sales x 11%

Closing Inventory = Next Month's Projected Sales x 11%

Change in Working Capital = (Closing Inventory - Opening Inventory) * 0.004

For January $ -880

Month Sales Beginning Inventory Balance January February March 23,000,000 21,000,000 28,000,000 31,000,000 2,530,000 2,310,000 3,080,000 3,410,000 Ending Inventory Ending Inventory - Change in Working Balance Opening Inventory Capital 2,310,000 (220,000) (880) 3,080,000 770,000 3,410,000 330,000 1,320 NA NA NA 3,080 April

For February $3,080

For March $1,320