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 collects cash 90 days after sales, so the low sales in the first quarter will result in low cash inflows in the second quarter, while cash disbursements remain steady, leading to a potential cash-out situation.

A Manufacturing ﬁRm Has a 90 Day Collection Period