Bercraft Industries has an average accounts payable balance of $280 000. Its average annual cost of goods sold is $4 780 000. It receives terms of 1/20 net 40 from its suppliers. Is Bercraft managing its accounts payables well?
A)Yes, since it, on average, chooses not to take the discount, but pays when payment is due.
B)Yes, since it, on average, takes the discount and pays at the end of the discount period.
C)Yes, since it, on average, stretches payment beyond the payment due date.
D)No, since it, on average, does not take advantage of the discount period and pays well before payment is due.

Question

Quizplus · Accepted Answer

Bercraft Industries is not managing its accounts payables well because it does not take advantage of the discount period and pays well before payment is due, which results in the opportunity cost of not earning interest on the cash they paid early.

Bercraft Industries Has an Average Accounts Payable Balance of $280