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Selected figures from a firm’s budget for next month are as follows.
Sales 450000
Gross profit on sales 30%
Decrease in trade payables over the month 10000
Increase in cost of inventory held over the month 18000
What is the budgeted payment to trade payables?
A $343,000
B $323,000
C $307,000
D $287,000ANSWER is A. Please share concept of solving.
A company is considering increasing its credit period to customers from one month to two months. Annual revenue is currently $1,200,000. It is expected that the increased credit period would increase sales by 25% and result in an increase in profit of $45,000, before any INCREASE in finance charges have been taken into account. The company’s cost of capital is 10%
What is the financial effect of this proposal, after taking into account any increase in finances charges?
A Increase in profit of $35,000
B Decrease in profit of $35,000
C Increase in profit of $30,000
D Decrease in profit of $30,000
Answer is C. Please explain this too.Please ask only one question in a thread.
Q1 sales = 450,000
COS = 70% X 450,000 = 315,000COS = OS + PURCHASES – CS
Purchases = COS + CS – OS = 315000 + 18000 = 333,000
Payable decreases 10,000, so 10,000 more was paid for than purchased.
Payments = 343,000
Q2
Current receivables 1,200,000/12 = 100,000
New receivables = 1,200,000 x 1.25 x 2/12 = 250,000
Effectively the company has 250,000 – 100,000 = 150,000 with customers, not in its bank account.
If cost of capital is 10% this costs 10% x150,000 = 15,000 to finance.
Increase in profit after finance charges is therefore 45,000 – 10,000= 30,000
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