Question

Working capital cash flow.  Tires for Less is a franchise of tire stores throughout the greater Northwest. It has projected the unit sales and costs for each tire type for the next four months in the popup​ window:  

	Snow Tires		Rain Tires		​All-Terrain Tires		​All-Purpose Tires
Cost per tire	​$40		​$30		​$48		​$35
​ Sales: January	40,000		19,000		5,000		61,000
​ Sales: February	38,000		34,000		4,100		54,000
​ Sales: March	13,000		45,000		9,000		51,000
​ Sales: April	2,100		20,000		9,000		65,000

. The company policy is to have the next​ month's anticipated sales for each tire type in the warehouse. Shipments are made to the various stores throughout the Northwest from the central warehouse. Calculate the monthly increase or decrease in cash flow for inventory for the first three months of the year given that an increase in inventory is a use of cash and a decrease in inventory is a source of cash.

Answer 1

Solution:
Opening inventory is Current Month sales
Closing inventory is Next month sales
Calculation of monthly increase or decrease in cash flow for inventory for the first three months of Year.
Snow Tires:
Cost per tire = $40
Months	Cost of Sales	Opening inventory	Closing Inventory	Working Capital Increase/Decrease in Cash Flow
	(No of tires * Cost Per tire)			(Closing Inventory - Opening Inventory)*Cost per Tire
January	$1600000	40000	38000	$-80000
	(40000*$40)			(38000-40000)*$40
February	$1520000	38000	13000	$-1000000
	(38000*$40)			(13000-38000)*$40
March	$520000	13000	2100	$-436000
	(13000*$40)			(2100-13000)*$40
April	$84000	2100
	(2100*$40)
Rain Tires:
Cost per tire = $30
Months	Cost of Sales	Opening inventory	Closing Inventory	Working Capital Increase/Decrease in Cash Flow
	(No of tires * Cost Per tire)			(Closing Inventory - Opening Inventory)*Cost per Tire
January	$570000	19000	34000	$450000
	(19000*$30)			(34000-19000)*$30
February	$1020000	34000	45000	$330000
	(34000*$30)			(45000-34000)*$30
March	$1350000	45000	20000	$-750000
	(45000*$30)			(20000-45000)*$30
April		20000
All-Terrain Tires:
Cost per tire = $48
Months	Cost of Sales	Opening inventory	Closing Inventory	Working Capital Increase/Decrease in Cash Flow
	(No of tires * Cost Per tire)			(Closing Inventory - Opening Inventory)*Cost per Tire
January	$240000	5000	4100	$-43200
	(5000*$48)			(4100-5000)*$48
February	$196800	4100	9000	$235200
	(4100*48)			(9000-4100)*$48
March	$432000	9000	9000	0
	(9000*48)			(9000-9000)*$48
April		9000
All-Purpose Tires:
Cost per tire = $35
Months	Cost of Sales	Opening inventory	Closing Inventory	Working Capital Increase/Decrease in Cash Flow
	(No of tires * Cost Per tire)			(Closing Inventory - Opening Inventory)*Cost per Tire
January	$2135000	61000	54000	$-245000
	(61000*$35)			(54000-61000)*$35
February	$1890000	54000	51000	$-105000
	(54000*$35)			(51000-54000)*$35
March	$1785000	51000	65000	$490000
	(51000*$35)			(65000-51000)*$35
April		65000