Payments for Materials. Emory Mills, Inc. is hard pressed for cash to meet scheduled payments for materials and other costs. Materials are purchased as needed for production. A month is required for production because of an aging process. Thus, production starts in Month 1 and ends in Month 2; sales occur in Month 3. In the production operation, a natural loss of materials occurs. The final output is equal to only 80 percent of the input. Sales by month have been bud- geted as follows:

Each unit is sold for $6.50. Half of the amount billed is collected during the month sold, with the other half being collected during the next month. Production materials cost $0.65 per gallon, and 4 gallons are needed to produce each unit of finished product. Costs of operation, other than materials costs, amount to $500,000 each month and must be paid during the month incurred. Purchases are paid in the following month.

Required: 

1. Determine the cost of materials purchases for July, August, and September.

2. Compute the expected cash inflow from customers and subtract estimated disbursements for July, August, and September.

3. Can the company meet the demands for cash each month? Comment.

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June. July 200,000 units 240,000 September. 280,000 units October 300,000 August... 320,000 November.. 320,000