Chapter 14, Problem 1RQ

Summary Introduction

To discuss: Effect of seasonal changes on delivery business while forecasting the firm’s financing requirements.

Explanation of Solution

During the holiday seasons, the delivery volumes tend to peak.

Company U needs investment in working capital in order to operate its operations. It requires increased storage space, vehicles for distribution, and criteria for temporary staffing. Such factors lead to an increase in working capital requirement.

The peak season has to be accounted for when forecasting the financing requirements of the company so that there is no disruption in the business and deliveries are completed on time. In particular, the following factors must be taken into account in the forecast:

• Increase in staff: Temporary staff can be recruited during peak season, which raises wage expense.
• Increased storage space: Increases the cost of rent.
• Increase in delivery vehicles: These can be rented, which increases the cost of operations.