Cash and Inventory Management

1. As part of a short term financial planning project, Keepin The Books Inc. would like to determine how much its cash balance has changed as a result of operating, financing, and investing activities. It has made the following cash flow entries:

Net Income: $1,000

Dividends: $600

Increased Payables: $80

Increased Receivables: $100

Increased Fixed Assets: $60

Increased Inventory: $45

Increased Long-Term Debt: $200

Depreciation: $475

Indicate whether the cash flow entries above represent a source of cash (cash inflow) or a use of cash (cash outflow) by writing out the cash flow activity (example: Dividends) and then putting an S (Source) or a U (Use) beside it. Each of the cash flow activities above is worth 0.5 marks (4 marks)

2. Name (1 mark) and explain (1 mark) the two costs associated with managing inventory.