A group of four UNM students decide to launch an iPhone cover company – iCover. These covers have strong lateral tension that almost doubles the force required to bend the iPhone. Company will outsource manufacturing to a diverse manufacturing firm- iMake, and sell the covers online. There are two main options for distributing the covers:
- Walmart.com
- Amazon.com
On average, Amazon and Walmart.com will charge fees equivalent of 10% of the sales. Customer will buy the product on one of these websites for a fixed price of $30. Goods posted for sale on both the websites are sold within a month of posting. Amazon will remit payments to the seller account in 60 days. While Walmart.com will remit payments in 30 days.
iMake- manufacturer of the covers- will produce covers according to the following sales schedule.
| Projected Unit Sales | ||
| 2021 (,000) | ||
| January | 10 | |
| February | 20 | |
| March | 50 | |
| April | 100 | |
| May | 100 | |
| June | 100 | |
| July | 100 | |
| August | 100 | |
| September | 100 | |
| October | 100 | |
| November | 100 | |
| December | 100 |
COGS is 50% of the sales. You are planning to contract with the supplier to make payment 30 days after delivery. The company will stop operations at end of one year.
Questions for Analysis
- For each distributor, calculate the cash balance (Total inflows of cash –Total outflows of cash) for each month for next one year. In the course video I show you the analysis for Amazon. Replicate the analysis for Walmart. Remember the only difference between the two is the extra month of accounts receivable.
- Calculate the maximum cash shortfall?
- Compare the two options- Walmart vs. Amazon and explain why there is difference between the two.
- Calculate the maximum cash shortfall for Amazon option if your supplier demands cash on delivery. This will reduce your Accounts payable from 30 days to zero.
