Chapter D, Problem 13E

To determine

Concept Introduction:

Days Payable outstanding (DPO):

Days payable outstanding is the time in days which the company takes to pay off its accounts payable. Day's payable outstanding is calculated using the following formula:

  $Day’spayableoutstanding=\frac{\left(AccountsPayable*365\right)}{CostofSales}$

Requirement-1:

To Calculate:

Days Payable outstanding for Current Year

Answer to Problem 13E

Days Payable outstanding for Current Year is 25

Explanation of Solution

Days Payable outstanding for Current Year is calculated as follows:

$ Millions	Current Year
Accounts Payable (A)	$ 1,931
Cost of Goods Sold (B)	$ 28,164
Days Payable Outstanding = (A*365/B)	25

To determine

Concept Introduction:

Days Payable outstanding (DPO):

Days payable outstanding is the time in days which the company takes to pay off its accounts payable. Day's payable outstanding is calculated using the following formula:

  $Day’spayableoutstanding=\frac{\left(AccountsPayable*365\right)}{CostofSales}$

Requirement-2:

To Calculate:

Reduction in Days Payable outstanding if accounts payables are reduced by 8%

Answer to Problem 13E

Reduction in Days Payable outstanding if accounts payables are reduced by 8% shall be 2 days

Explanation of Solution

Reduction in Days Payable outstanding if accounts payables are reduced by 8% is calculated as follows:

Before Reduction in Accounts Payable:
$ Millions	Current Year
Accounts Payable (A)	$ 1,931
Cost of Goods Sold (B)	$ 28,164
Days Payable Outstanding = (A*365/B)	25
After Reduction in Accounts Payable:
$ Millions	Current Year
Accounts Payable (A) (1931*92%)	$ 1,777
Cost of Goods Sold (B)	$ 28,164
Days Payable Outstanding = (A*365/B)	23
Reduction in Days Payable Outstanding (25-23)	2

To determine

Concept Introduction:

Days Payable outstanding (DPO):

Days payable outstanding is the time in days which the company takes to pay off its accounts payable. Day's payable outstanding is calculated using the following formula:

  $Day’spayableoutstanding=\frac{\left(AccountsPayable*365\right)}{CostofSales}$

Requirement-3:

To Calculate:

Increase in Days Payable outstanding if accounts payables are increased by 8%

Answer to Problem 13E

Increase in Days Payable outstanding if accounts payables are increased by 8% shall be 2 days

Explanation of Solution

Increase in Days Payable outstanding if accounts payables are increased by 8% is calculated as follows:

Before Increase in Accounts Payable:
$ Millions	Current Year
Accounts Payable (A)	$ 1,931
Cost of Goods Sold (B)	$ 28,164
Days Payable Outstanding = (A*365/B)	25
After Increase in Accounts Payable:
$ Millions	Current Year
Accounts Payable (A) (1931*108%)	$ 2,085
Cost of Goods Sold (B)	$ 28,164
Days Payable Outstanding = (A*365/B)	27
Reduction in Days Payable Outstanding (27-25)	2