Question

16. For the first quarter of the year, a company has projected sales of $3,435. Sales in the subsequent quarters are projected to increase at 10.74% per quarter. The company has a payables period of 52 days. The company purchases inventory in each quarter equal to 36% of projected sales for the following quarter. Assuming a quarter equals 90 days, how much total cash payments are made in the first quarter for inventory purchases?

Answer 1

Answer is $1,313

Payable period = 52 days

Cash paid for current quarter purchase = (90 - Payable period) / 90
Cash paid for current quarter purchase = (90 - 52) / 90
Cash paid for current quarter purchase = 38/90 or 19/45

Cash paid during 1st quarter = (19/45) * 1st quarter purchase + (26/45) * 4th quarter purchase
Cash paid during 1st quarter = (19/45) * $1,236.60 + (26/45) * $1,369.41
Cash paid during 1st quarter = $1,313