Ponzi Products produced 88 chain-letter kits this quarter, resulting in a total cash outlay of $11...

Ponzi Products produced 88 chain-letter kits this quarter, resulting in a total cash outlay of $11 per unit. It will sell 44 of the kits next quarter at a price of $12, and the other 44 kits in the third quarter at a price of $13. It takes a full quarter for Ponzi to collect its bills from its customers. (Ignore possible sales in earlier or later quarters.) (Negative amount should be indicated by a minus sign.)

a. What is the net income for Ponzi next quarter?

b. What are the cash flows for the company this quarter?

c. What are the cash flows for the company in the third quarter?

d. What is Ponzi’s net working capital in the next quarter?

Expert Solution


a)	Net Income for Ponzi Next Quarter
	= Sales of Next Quarter - Cost of Goods Sold of Next Quarter
	= (44 kits * $12) - (44 Kits * $11)
	= $528 - $484
	= $44

b)	Cash Folws for Ponzi this quarter
	= Cash Outflow
	= No of kits produced this quarter * Cost per unit
	= 88 * $11
	= $968

c)	Cash Flow for Ponzi in third quarter
	= Amount received from Sales in second quarter
	(As Ponzi takes a full quarter to collect its bills from its customers)
	= Kits sold in 2nd Quarter * Price pr kit
	= 44 kits * $12
	= $528

d)	Please note that cost will become part of net income as and when
	goods are sold, till then it will become part of inventory.
	Similarly, till bills are collected it will become part of accounts
	receivable.
	So,
	Net Working Capital of Next Quarter
	= Value Inventory of Remaining kits + Accounts Receivable of this quarter
	= (88 kits - 44 kits)$11 + (44 kits $12)
	= $484 + $528
	= $1012

jeff jeffy answered 1 year ago

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