Confusion Products has projected the following sales for the coming year: Sales

Question

Confusion Products has projected the following sales for the coming year:

Sales in the year following this one are projected to be 10 percent greater in each quarter.

Calculate payments to suppliers assuming that the company places orders during each quarter equal to 25 percent of projected sales for the next quarter. Assume that the company pays immediately.

What is the payables period in this case?

For payment of accounts? Payment of accounts Q1$Q2$ Q3$ Q4$ ?

Calculate payments to suppliers assuming that the company places orders during each quarter equal to 25 percent of projected sales for the next quarter. Assuming a 90-day payables period. (Do not include the dollar signs ($). Round your answers to 2 decimal places (e.g., 32.16).)

Calculate payments to suppliers assuming that the company places orders during each quarter equal to 25 percent of projected sales for the next quarter. Assuming a 60-day payables period. (Do not include the dollar signs ($). Round your answers to 2 decimal places (e.g., 32.16).)

Confusion Products has projected the following sales for the coming year:

Q1 Q2 Q3 Q4   Sales $720 $840 $960 $930

Sales in the year following this one are projected to be 10 percent greater in each quarter.

Requirement 1:

Calculate payments to suppliers assuming that the company places orders during each quarter equal to 25 percent of projected sales for the next quarter. Assume that the company pays immediately.

What is the payables period in this case?

For payment of accounts? Payment of accounts Q1$Q2$ Q3$ Q4$ ?

Requirement 2:

Calculate payments to suppliers assuming that the company places orders during each quarter equal to 25 percent of projected sales for the next quarter. Assuming a 90-day payables period. (Do not include the dollar signs ($). Round your answers to 2 decimal places (e.g., 32.16).)

Q1 Q2 Q3 Q4   Payment of accounts $    $    $    $    Requirement 3:

Calculate payments to suppliers assuming that the company places orders during each quarter equal to 25 percent of projected sales for the next quarter. Assuming a 60-day payables period. (Do not include the dollar signs ($). Round your answers to 2 decimal places (e.g., 32.16).)

Q1 Q2 Q3 Q4   Payment of accounts $    $    $    $   

Explanation / Answer

Requirement 1:

Since, the company makes the payment immediately, the amount of payment made each quarter will be equal to the 25% of the sales of the next quarter. Therefore the payment of accounts would be calculated as follows:

Payment of Accounts (Quarter 1) = 840*25% = $210

Payment of Accounts (Quarter 2) = 960*25% = $240

Payment of Accounts (Quarter 3) = 930*25% = $232.5

Payment of Accounts (Quarter 4) = 720*(1+10%)*25% = $198 [since sales is expected to be greater by 10% for each quarter in the next year]

The payables period is 0 in this case, as the payment is made immediately by the company.

__________

Requirement 2:

In this case, the amount of payment made each quarter will be equal to the 25% of the sales of the current quarter. It is so because the payables period is 90 days. Therefore the payment of accounts would be calculated as follows:

Payment of Accounts (Quarter 1) = 720*25% = $180

Payment of Accounts (Quarter 2) = 840*25% = $210

Payment of Accounts (Quarter 3) = 960*25% = $240

Payment of Accounts (Quarter 4) = 930*25% = $232.50

__________

Requirement 3:

In this case, the amount of payment made each quarter can be dervied with the use of following formula:

Payment of Accounts = 2/3*25%*Current Quarter Sales + 1/3*25%*Next Quarter Sales

__________

The payment of accounts for each quarter has been calculated as follows:

Payment of Accounts (Quarter 1) = 720*25%*2/3 + 840*25%*1/3 = $190

Payment of Accounts (Quarter 2) = 840*25%*2/3 + 960*25%*1/3 = $220

Payment of Accounts (Quarter 3) = 960*25%*2/3 + 930*25%*1/3 = $237.50

Payment of Accounts (Quarter 4) = 930*25%*2/3 + 720*(1+10%)*25%*1/3 = $221

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