Question

Dynamic Futon forecasts the following purchases from suppliers:

	Jan.	Feb.	Mar.	Apr.	May	Jun.
Value of goods ($ millions)	32	28	25	22	20	20

a. Forty percent of goods are supplied cash-on-delivery. The remainder are paid with an average delay of one month. If Dynamic Futon starts the year with payables of $22 million, what is the forecasted level of payables for each month? (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.)

	Jan.	Feb.	Mar.	Apr.	May	Jun.
Payables	$	$	$	$	$	$

b. Suppose that from the start of the year the company stretches payables by paying 40% after one month and 20% after two months. (The remainder continue to be paid cash on delivery.) Recalculate payables for each month assuming that there are no cash penalties for late payment. (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.)

	Jan.	Feb.	Mar.	Apr.	May	Jun.
Payables	$	$	$	$	$	$

Answer 1

a) All data are in $ millions

Purchase COD Payable for current month Previous Payables Total Payables Jan 32 12.8 19.2 22 41.2 Feb 28 11.2 16.8 0 16.8 Mar 25 10 15 0 15 Apr 22 8.8 13.2 0 13.2 May 20 8 12 0 12 Jun 20 8 12 0 12

Notes:

• COD is 40% of purchases.
• Payable for this month = ( Purchases - COD )
• Previous Payables is $ 22 million for Jan and as it takes 1 month average dealy to pay its payables, the payables will be 0 for next month as the accounting is done at the end of the month.
• Total Payables = Payables for current month + Previous Payables

b)

Purchase COD Payable for Current Month Payable After Two Months Previous Payables Total Payables Jan 32 12.8 12.8 6.4 22 41.2 Feb 28 11.2 11.2 5.6 6.4 23.2 Mar 25 10 10 5 5.6 20.6 Apr 22 8.8 8.8 4.4 5 18.2 May 20 8 8 4 4.4 16.4 Jun 20 8 8 4 4 16

Notes:

• COD is 40% of purchases.
• Payable for this month = 40 % of Purchases
• Payable after two months = 20 % of Purchase
• Previous Payables is $ 22 million for Jan and for rest months is the 20% of payables for the previous month.
• Total Payables = Payables for current month + Previous Payables