Manny Fold owns a factory that specializes in making titanium valves for high performance

Manny Fold owns a factory that specializes in making titanium valves for high performance
engines on a just in time basis. Thus, Manny produces what he sells in a particular month. There
are no inventories of finished goods or work in process. However, Manny does require that an
inventory of direct raw materials equal to 10% of next month’s production requirement be
available at the end of each month. To build his business and gain new customers Manny has
extended generous credit terms to his customers. While Manny is confident about the
fundamentals of his business, he is concerned about the possible cash flow implications.