A manufacturing firm has a 90 day collection period. The firm produces seasonal merchandise and thus has the least sales during the first quarter of a year and the highest level of sales during the third quarter of a year. The firm maintains a relatively steady level of production which means that its cash disbursements are fairly equal in all quarters. The firm is most apt to face a cash-out situation in:

Question

Quizplus · Accepted Answer

The firm has the least sales in the first quarter, and with a 90-day collection period, it will collect cash from these sales in the second quarter. Since production costs are steady, the firm is most likely to face a cash-out situation in the second quarter when cash inflows are low.

A Manufacturing Firm Has a 90 Day Collection Period