a) BBC has an average accounts payable balance of $500,000. Its average daily cost of goods...
a) BBC has an average accounts payable balance of $500,000. Its average daily cost of goods sold is $15,000, and it receives terms of 2/15, net 35, from its suppliers. BBC chooses to forgo the discount. Is the firm managing its accounts payable well?
b) Max Corp. has an average accounts payable balance of $225,000. Its average daily cost of goods sold is $10,000, and it receives terms of 1/15, net 40, from its suppliers. Max chooses to forgo the discount. Is the firm managing its accounts payable well?
Homework Answers
a. In the situation 2 / 15 days denotes discount and no of days upto which payment can be main to avail the discount no of days here are 15. Average payment period of BBC company is 33.34days ( 500000 / 15000 ). Since company is not able to make the payment in prescribed days it is not managing the account payables well. If the company reduces the days to half company can avail discount and manage the account payables well.
b. Similar to the situation in point a no of days upto which company can avail discount is 15 days. Payment period of max corp is 22.5 days ( 225000 / 10000 ). In this case also the company is not able to manage its account payables well. If company makes the payment a week earlier it can avail the prescribed discount.
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