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The balance of Landy ​Corporation's accounts payable at the beginning of the most recent year was...

The balance of Landy ​Corporation's accounts payable at the beginning of the most recent year was $ 50,000. At the end of the​ year, the accounts payable balance was $ 54,000. Landy's sales revenue for the year was $ 3,105,000​, while its cost of goods sold for the year was $ 1,508,000. Calculate Landy's ​days' payable outstanding​ (DPO) for the year. Assume inventory levels are constant throughout the year. If the credit terms from Landy's suppliers are​ n/30, how would you interpret Landy's ​DPO?

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Expert Solution

If Inventory level is constant throughout the year ,it means beginning inventory and ending inventory are same thus Purchase is equals to cost of goods sold = 1508000

Average accounts payable =[Beginning payable +ending payable ]/2

                            = [50000+ 54000]/2

                              = 52000

days' payable outstanding​ = 365 *Average accounts payable /cost of goods sold

                            = 365 * 52000 / 1508000

                            = 12.59 days

The days payable outstanding measures average number of time company takes to pay to its suppliers .in the given situation Landy ​Corporation have 30 days of time to pay to its supplier however the same is paid withing 13 days (approx) it means Landy ​Corporation is unable to make better use of credit facility available (deploy resources ).

jeff jeffy answered 1 year ago
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