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 $20,000 toward the purchase of composite shafts. Each unit requires 4 board feet of composite material at $16.55 per board foot. All composite material is purchased in the month prior to its expected use. Composite shaft purchases are paid for 20% in the month of purchase, 70% in the month following the month of purchase, and 10% in the second month following the month of purchase.

Month		Units
January		0
February		400
March		200
April		375
May		520
June		220
July		400
August		350
September		320
October		220
November		160
December		300
January		240

Which months will require cash outlays in excess of the $20,000 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?

Worksheet 4

Anticipated cash payments

Units

Purchasing Activity

Total Board Feet (4 per unit)

Total Cost of Composite Shafts ($15.70 per foot)

Paid in Month (15%)

Paid in Month Relating to Prior (80%)Month

Paid in Month Relating to Two Months Prior (5%)

Total

January

February

March

April

May

June

July

August

September

October

November

December

January

Answer 1

Worksheet 4
Anticipated cash payments
	Units	Purchasing Activity	Total Board Feet	Total Cost of Composite Shafts	Paid in Month	Paid in Month Relating to Prior	Paid in Month Relating to Two Months Prior	Total
(4 per unit)	($16.55 per foot)	20%	(70%)Month	10%
January	0	400	1600	$          26,480.00	$              5,296.00	$                           -	$                                 -	$                5,296.00
February	400	200	800	$          13,240.00	$              2,648.00	$           18,536.00	$                                 -	$             21,184.00
March	200	375	1500	$          24,825.00	$              4,965.00	$              9,268.00	$                    2,648.00	$             16,881.00
April	375	520	2080	$          34,424.00	$              6,884.80	$           17,377.50	$                    1,324.00	$             25,586.30
May	520	220	880	$          14,564.00	$              2,912.80	$           24,096.80	$                    2,482.50	$             29,492.10
June	220	400	1600	$          26,480.00	$              5,296.00	$           10,194.80	$                    3,442.40	$             18,933.20
July	400	350	1400	$          23,170.00	$              4,634.00	$           18,536.00	$                    1,456.40	$             24,626.40
August	350	320	1280	$          21,184.00	$              4,236.80	$           16,219.00	$                    2,648.00	$             23,103.80
September	320	220	880	$          14,564.00	$              2,912.80	$           14,828.80	$                    2,317.00	$             20,058.60
October	220	160	640	$          10,592.00	$              2,118.40	$           10,194.80	$                    2,118.40	$             14,431.60
November	160	300	1200	$          19,860.00	$              3,972.00	$              7,414.40	$                    1,456.40	$             12,842.80
December	300	240	960	$          15,888.00	$              3,177.60	$           13,902.00	$                    1,059.20	$             18,138.80
January	240		0	$                          -	$                           -	$           11,121.60	$                    1,986.00	$             13,107.60

As it can be seen from the above table, in the following months cash outlay of more that $20,000 will be required :

February

April

May

July

August

September

Working: