Calculating Payments Lewellen Products has projected the following sales for the

Question

Calculating Payments Lewellen Products has projected the following sales for the coming year:

Sales in the year following this one are projected to be 15 percent greater in each quarter.

a. Calculate payments to suppliers assuming that Lewellen places orders during each quarter equal to 30 percent of projected sales for the next quarter. Assume that the company pays immediately. What is the payables period in this case?

Sales are:

Q1: $860

Q2: $940

Q3: $900

Q4: $1,000

b.Rework (a) assuming a 90-day payables period.

c.Rework (a) assuming a 60-day payables period.

Explanation / Answer

(A) if the payment is done immediately

                                       Q1                   Q2                       Q3                  Q4                       Q5=$860*115%

(b) since the payment period is 90 days , the payment in each period is 30%, of the current period sale

so quarterly payments = 30% of current sales

(C) since the payable period is 60 so

Quarterly payments = 2/3 (30% of current sales ) + 1/3 ( 30% of next period sales)

Total               $266                   $278                    $280                  $289.90

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