Question

Paymore Products places orders for goods equal to 75% of its sales forecast in the next quarter which has been provided in the below table.

	Quarter in Coming Year					Following Year
	First	Second	Third	Fourth		First Quarter
Sales forecast	$372	$360	$336	$384		$384

On average, one-third of sales are collected in the quarter that they are sold, and two-thirds are collected in the following quarter. Assume that sales in the last quarter of the previous year were $336. Also, one third of the orders are paid for in the current month and then two thirds of the next quarter's orders are paid in advance. Assuming that Paymore’s labor and administrative expenses are $65 per quarter and that interest on long-term debt is $40 per quarter, work out the net cash flow for Paymore for the coming year using the below table. (Do not round intermediate calculations.)

Answer 1

	Quarter
	First	Second	Third	Fourth
Sources of cash
Collection on accounts receivables	348	368	352	352
Uses of cash:
Payments of accounts payable	273	258	276	288
Labor and administrative expense	65	65	65	65
Interest on long term debt	40	40	40	40
Total use of cash	378	363	381	393
Net cash inflow/(outflow)	-30	5	-29	-41

Working note :
1]
	Quarter
Collection on accounts receivables :	First	Second	Third	Fourth
1/3rd of current quarter sales	124	120	112	128
2/3rd of previous quarter sales	224	248	240	224
Collection on accounts receivables :	348	368	352	352

2]
	Quarter in coming year	Following year
	First	Second	Third	Fourth	First quarter
Purchases [ 75% of sales ]	279	270	252	288	288
Payments of accounts payable :
1/3rd of current quarter's purchases	93	90	84	96
2/3rd of following quarter's purchases	180	168	192	192
Payments of accounts payable	273	258	276	288