# Answered Essay: 1) BBC has an average accounts payable balance of \$500,000. Its average daily cost of goods sold is \$15,000, and it receives terms of 2/1

1) BBC has an average accounts payable balance of \$500,000. Its average daily cost of goods sold is \$15,000, and it receives terms of 2/15, net 35, from its suppliers. BBC chooses to forgo the discount. Is the firm managing its accounts payable well?

2) Max Corp. has an average accounts payable balance of \$225,000. Its average daily cost of goods sold is \$10,000, and it receives terms of 1/15, net 40, from its suppliers. Max chooses to forgo the discount. Is the firm managing its accounts payable well?

3) SportsMart sells 500,000 baseballs annually. The baseballs cost SportsMart \$24 per dozen (\$2.00 each). Annual inventory carrying costs are 25% of inventory value and the cost of placing and receiving an order are \$78. Determine the:

A) Economic Order Quantity
B) Total annual inventory costs of this policy
C) Optimal ordering frequency

4) Nike sells 1,000,000 basketballs annually. The baseballs cost Nike \$180 per dozen (\$15.00 each). Annual inventory carrying costs are 20% of inventory value and the cost of placing and receiving an order are \$150. Determine the:

A) Economic Order Quantity
B) Total annual inventory costs of this policy
C) Optimal ordering frequency

Solution 1.

BBC’s account payable ratio is approx. 500,000/15,000 = 33 days which means the company is paying the account payable almost near the due date.

As they are not paying the account payable within 15 days to avail 2% discount it means they are ending up paying more cash to the account payables.

So it can be said that they are not managing there accounts payable well as paying within 15 days can help them in getting more discounts and free more cash.

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