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 fourth 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

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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