Question

In: Finance

A firm has an average accounts payable of $72,451.00, with COGS reported at $811,334.00 for the...

A firm has an average accounts payable of $72,451.00, with COGS reported at $811,334.00 for the past year.

A supplier has offered the firm a large discount if they can reduce days payable to 7 days. What would be the average accounts payable if they take this discount?

Solutions

Expert Solution

Days Payable outstanding = Average accounts Payable/(Cost of goods sold/Number of days)
= $ 72,451 / (811334/365)
= $ 72,451 / $    2,223
=               33 Days
Reduced Days Payable = 7 Days
Revised days payable = Average accounts Payable/(Cost of goods sold/Number of days)
7 = Average accounts Payable/ (811334/365)
7 = Average accounts Payable/ $    2,223
7 = Average accounts Payable/ $    2,223
Average accounts Payable = $ 15,560
Thus, Average accounts Payable if they take discount is $ 15,560
Note:
a. Number of days in a year is taken as 365
b. There may be approximation difference due to runding off.

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