Page 485 - FM Integrated WorkBook STUDENT 2018-19

Answers

Question 2

Cash forecasting

Material usage quantities for a company are predicted to be as follows:

Month 1 2 3 4 5

(000) 10 12 14 16 18

Production costs are $5 per unit and suppliers are paid in the month after
purchase. The company intends to increase stocks of materials by 2,000 units
each month by the end of months 1 and 2 and by 1,000 units each month by the
end of months 3, 4 and 5.

Calculate the cash payments for material purchases for months 3 to 5.

Cash payments for the month relate to previous month’s purchases. Purchases
will be greater than usages each month due to the intent to increase stock
levels.

Month 3 4 5

Month of purchase 2 3 4

Purchase quantities 12+2 14+1 16+1

At $5 each ($000) 70 75 85

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