Question

Sexton Corp. has projected the following for the coming year:

Sales: Quarter one → $940, Q2 → $1,130, Q3 → $1,210, Q4 → $1,450
Sales in the year following are projected to be 15% greater in each quarter.

a. Calculate payments to suppliers assuming that the company places orders during each quarter equal to 30% of projected sales for the next quarter. Assuming that the company pays immediately, what is the payables period of this case?

b. Rework part( a) assuming a 90-day payables period.

Answer 1

Payments to suppliers are calculated as 30% of next quarter's projected sales, with immediate payment leading to a 0-day payables period. For part b, with a 90-day payables period, payments are still at 30% of projected sales but delayed for 90 days. Kindly follow up the explanation for proper calculation.

Step-by-step explanation:

To calculate the payments to suppliers for Sexton Corp. based on their projected sales, we will take 30% of the sales projected for the next quarter. For a company that pays immediately, the payables period would be effectively 0 days because payment occurs as soon as the orders are placed.

Quarter 1 payment: 30% of Q2 sales = 0.30 × $1,130

= $339

Quarter 2 payment: 30% of Q3 sales = 0.30 × $1,210

= $363

Quarter 3 payment: 30% of Q4 sales = 0.30 × $1,450

= $435

Quarter 4 payment: 30% of Q1 sales for the next year (15% higher) = 0.30 × ($940 × 1.15)

= $323.10

To address part b, assuming a 90-day payables period, the company would still place orders equivalent to 30% of projected sales for the next quarter, but payment would be deferred for 90 days.