Question

The Torrey Pine Corporation’s purchases from suppliers in a quarter are equal to 60 percent of the next quarter’s forecast sales. The payables period is 60 days. Wages, taxes, and other expenses are 25 percent of sales, and interest and dividends are $80 per quarter. No capital expenditures are planned.

Projected quarterly sales are shown here:

	Q1			Q2			Q3			Q4
Sales	$	1,980		$	2,280		$	1,980		$	1,680

Sales for the first quarter of the following year are projected at $2,310. Calculate the company’s cash outlays by completing the following:

Answer 1

	Q1	Q2	Q3	Q4
Payment of accounts	{1980*.60*2/3 + 2280*0.60*1/3} =792+456 =1248	{2280*.60*2/3 + 1980*0.60*1/3} =912 + 396 =1308	{1980*.60*2/3 + 1680*0.60*1/3} =792 + 336 =1128	{1680*.60*2/3 + 2310*0.60*1/3} =672 + 462 =1134
Wages, taxes, and other expenses (Quarter sales * 25%)	495	570	495	420
Long term financing expense(interest and dividends )	80	80	80	80
Total	1823	1958	1703	1634

Note:- 60 days payable period means {2/3 * Current quarter purchase * 60% } and {1/3 * next quarter purchase*60%}