Chapter 16, Problem 8QP

a)

Summary Introduction

To determine: The amount of payments to suppliers of all the four quarters, when the company pays immediately.

Introduction:

Accounts payable period: It is a period that a company takes to pay its invoice from the creditors. It is also termed as a day’s payable period.

Answer to Problem 8QP

The payable amount to suppliers of Quarter 1(Q1) is $237.

The payable amount to suppliers of Quarter 2(Q2) is $288.

The payable amount to suppliers of Quarter 3(Q3) is $264.

The payable amount to suppliers of Quarter 4(Q4) is $248.4.

Explanation of Solution

Given information:

The GP Company places its orders during each quarter at 30% of projected sales for the next quarter. The Sales of Q1 is $720, Sales of Q2 is $790, Sales of Q3 is $960, and Sales of Q4 is $880.

The formula to calculate the payment amount to the suppliers:

$\text{Payment amount to the suppliers}=\left(\begin{array}{l}\text{Sales of the next quarter}\\ \times \text{ Percentage of projected sales for next quarter}\end{array}\right)$

Compute the payable amount for each quarter:

Note: Since the company pays immediately, the payable period becomes zero.

Compute the payment amount to the suppliers of Quarter 1 (Q1):

$\begin{array}{c}\begin{array}{l}\text{Payment amount to the }\\ \text{suppliers of Q1}\end{array}\}=\left(\begin{array}{l}\text{Sales of Q2}\\ \times \text{ Percentage of projected sales for next quarter}\end{array}\right)\\ =\$790\times \frac{30}{100}\\ =\$\text{237}\end{array}$

Hence, the payment amount to the suppliers of Q1 is $237.

Compute the payment amount to the suppliers of Quarter 2 (Q2):

$\begin{array}{c}\begin{array}{l}\text{Payment amount to the }\\ \text{suppliers of Q2}\end{array}\}=\left(\begin{array}{l}\text{Sales of Q3}\\ \times \text{ Percentage of projected sales for next quarter}\end{array}\right)\\ =\$960\times \frac{30}{100}\\ =\$288\end{array}$

Hence, the payment amount to the suppliers of Q2 is $288.

Compute the payment amount to the suppliers of Quarter 3(Q3):

$\begin{array}{c}\begin{array}{l}\text{Payment amount to the }\\ \text{suppliers of Q3}\end{array}\}=\left(\begin{array}{l}\text{Sales of Q4}\\ \times \text{ Percentage of projected sales for next quarter}\end{array}\right)\\ =\$880\times \frac{30}{100}\\ =\$\text{264}\end{array}$

Hence, the payment amount to the suppliers of Q3 is $264.

Compute the payment amount to the suppliers of Quarter 4(Q4):

$\begin{array}{c}\begin{array}{l}\text{Payment amount to the }\\ \text{suppliers of Q4}\end{array}\}=\left[\begin{array}{c}\left[\left(\text{Sales of Q1}\times \text{Percentage of sales in year}\right)+\text{ Sales of Q1}\right]\\ \times \text{ Percentage of projected sales for next quarter}\end{array}\right]\\ =\left[\left(\$720\times \frac{15}{100}\right)+\$720\right]\times \frac{30}{100}\\ =\left[\$\text{108}+\$720\right]\times \frac{30}{100}\\ =\$\text{248}\text{.4}\end{array}$

Hence, the payment amount to the suppliers of Q4 is $248.4.

b)

Summary Introduction

To determine: The amount of payments to suppliers of all the four quarters, when the payables period is 90 days.

Introduction:

Accounts payable period: It is a period that a company takes to pay its invoice from the creditors. It is also termed as a day’s payable period.

Answer to Problem 8QP

The payable amount to suppliers of Quarter 1(Q1) is $216.

The payable amount to suppliers of Quarter 2(Q2) is $237.

The payable amount to suppliers of Quarter 3(Q3) is $288.

The payable amount to suppliers of Quarter 4(Q4) is $264.

Explanation of Solution

Given information:

The GP Company places its orders during each quarter at 30% of projected sales for the next quarter. The Sales of Q1 is $720, Sales of Q2 is $790, Sales of Q3 is $960, and Sales of Q4 is $880.

Compute the payable amount for each quarter:

Note: Since the payables period is 90 days, the payable amount will be 30% of the current year sales.

Compute the payment amount to the suppliers of Quarter 1 (Q1):

$\begin{array}{c}\begin{array}{l}\text{Payment amount to the }\\ \text{suppliers of Q1}\end{array}\}=\left(\begin{array}{l}\text{Sales of Q1}\\ \times \text{ Percentage of projected sales for next quarter}\end{array}\right)\\ =\$720\times \frac{30}{100}\\ =\$216\end{array}$

Hence, the payment amount to the suppliers of Q1 is $216.

Compute the payment amount to the suppliers of Quarter 2 (Q2):

$\begin{array}{c}\begin{array}{l}\text{Payment amount to the }\\ \text{suppliers of Q2}\end{array}\}=\left(\begin{array}{l}\text{Sales of Q2}\\ \times \text{ Percentage of projected sales for next quarter}\end{array}\right)\\ =\$790\times \frac{30}{100}\\ =\$\text{237}\end{array}$

Hence, the payment amount to the suppliers of Q2 is $237.

Compute the payment amount to the suppliers of Quarter 3(Q3):

$\begin{array}{c}\begin{array}{l}\text{Payment amount to the }\\ \text{suppliers of Q3}\end{array}\}=\left(\begin{array}{l}\text{Sales of Q3}\\ \times \text{ Percentage of projected sales for next quarter}\end{array}\right)\\ =\$960\times \frac{30}{100}\\ =\$\text{288}\end{array}$

Hence, the payment amount to the suppliers of Q3 is $288.

Compute the payment amount to the suppliers of Quarter 4(Q4):

$\begin{array}{c}\begin{array}{l}\text{Payment amount to the }\\ \text{suppliers of Q4}\end{array}\}=\left(\begin{array}{l}\text{Sales of Q4}\\ \times \text{ Percentage of projected sales for next quarter}\end{array}\right)\\ =\$880\times \frac{30}{100}\\ =\$264\end{array}$

Hence, the payment amount to the suppliers of Q4 is $264.

c)

Summary Introduction

To determine: The amount of payments to suppliers of all the four quarters, when the payables period is 60 days.

Introduction:

Accounts payable period: It is a period that a company takes to pay its invoice from the creditors. It is also termed as a day’s payable period.

Answer to Problem 8QP

The payable amount to suppliers of Quarter 1(Q1) is $223.

The payable amount to suppliers of Quarter 2(Q2) is $254.

The payable amount to suppliers of Quarter 3(Q3) is $280.

The payable amount to suppliers of Quarter 4(Q4) is $200.84.

Explanation of Solution

Given information:

The GP Company places its orders during each quarter at 30% of projected sales for the next quarter. The Sales of Q1 is $720, Sales of Q2 is $790, Sales of Q3 is $960, and Sales of Q4 is $880.

Note: The payables period is 60 days, so the payment in every period will be two-third of current quarter’s orders plus the one-third of next quarter’s orders.

The formula to calculate the payable amount for each quarter:

$\text{Payable amount}=\left[\begin{array}{l}\left(\frac{2}{3}\text{ of Current quarter's sales}\times \text{Percentage of projected sales for next quarter}\right)\\ +\left(\frac{1}{3}\text{of Next quarter's sales}\times \text{Percentage of projected sales for next quarter}\right)\end{array}\right]$

Compute the payment amount to the suppliers of Quarter 1 (Q1):

$\begin{array}{c}\begin{array}{l}\text{Payment amount to the }\\ \text{suppliers of Q1}\end{array}\}=\left[\begin{array}{l}\left(\begin{array}{l}\frac{2}{3}\text{ of Current quarter's sales}\\ \times \text{Percentage of projected sales for next quarter}\end{array}\right)\\ +\left(\begin{array}{l}\frac{1}{3}\text{of Next quarter's sales}\\ \times \text{Percentage of projected sales for next quarter}\end{array}\right)\end{array}\right]\\ =\left(\frac{2}{3}\times \$720\times \frac{30}{100}\right)+\left(\frac{1}{3}\times \$790\times \frac{30}{100}\right)\\ =\$144+\$79\\ =\$223\end{array}$

Hence, the payment amount to the suppliers of Q1 is $223.

Compute the payment amount to the suppliers of Quarter 2 (Q2):

$\begin{array}{c}\begin{array}{l}\text{Payment amount to the }\\ \text{suppliers of Q2}\end{array}\}=\left[\begin{array}{l}\left(\begin{array}{l}\frac{2}{3}\text{ of Current quarter's sales}\\ \times \text{Percentage of projected sales for next quarter}\end{array}\right)\\ +\left(\begin{array}{l}\frac{1}{3}\text{of Next quarter's sales}\\ \times \text{Percentage of projected sales for next quarter}\end{array}\right)\end{array}\right]\\ =\left(\frac{2}{3}\times \$790\times \frac{30}{100}\right)+\left(\frac{1}{3}\times \$960\times \frac{30}{100}\right)\\ =\$\text{158}+\$\text{96}\\ =\$\text{254}\end{array}$

Hence, the payment amount to the suppliers of Q2 is $254.

Compute the payment amount to the suppliers of Quarter 3 (Q3):

$\begin{array}{c}\begin{array}{l}\text{Payment amount to the }\\ \text{suppliers of Q3}\end{array}\}=\left[\begin{array}{l}\left(\begin{array}{l}\frac{2}{3}\text{ of Current quarter's sales}\\ \times \text{Percentage of projected sales for next quarter}\end{array}\right)\\ +\left(\begin{array}{l}\frac{1}{3}\text{of Next quarter's sales}\\ \times \text{Percentage of projected sales for next quarter}\end{array}\right)\end{array}\right]\\ =\left(\frac{2}{3}\times \$960\times \frac{30}{100}\right)+\left(\frac{1}{3}\times \$880\times \frac{30}{100}\right)\\ =\$\text{192}+\$\text{88}\\ =\$\text{280}\end{array}$

Hence, the payment amount to the suppliers of Q3 is $280.

Compute the payment amount to the suppliers of Quarter 4 (Q4):

$\begin{array}{c}\begin{array}{l}\text{Payment amount to the }\\ \text{suppliers of Q4}\end{array}\}=\left[\begin{array}{l}\left(\begin{array}{l}\frac{2}{3}\text{ of Current quarter's sales}\\ \times \text{Percentage of projected sales for next quarter}\end{array}\right)\\ +\left(\begin{array}{l}\frac{1}{3}\text{of Next quarter's sales}\\ \times \text{Percentage of projected sales for next quarter}\end{array}\right)\end{array}\right]\\ =\left(\frac{2}{3}\times \$880\times \frac{30}{100}\right)+\left(\frac{1}{3}\times \$248.4\times \frac{30}{100}\right)\\ =\$\text{176}+\$\text{24}\text{.84}\\ =\$\text{200}\text{.84}\end{array}$

Hence, the payment amount to the suppliers of Q4 is $200.84.