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

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