If a company has RM200,000 in Costs of goods sold, RM 15,000 inventories and RM 12,500 inventories. What is its average payment period?

1. Break Down the Problem

To find the average payment period, we need to identify the relevant components:

• Cost of Goods Sold (COGS): RM200,000
• Inventories: RM15,000
• Accounts Payable: RM12,500

The average payment period can be derived using the formula: $\text{Average Payment Period} = \frac{\text{Accounts Payable}}{\text{COGS per day}}$

2. Relevant Concepts

To calculate the COGS per day, we need to divide the total COGS by the number of days in the accounting period (commonly 365 days).

3. Analysis and Detail

1. Calculate COGS per day: $\text{COGS per day} = \frac{200,000}{365}$ $\text{COGS per day} \approx 547.95$

2. Calculate the average payment period: $\text{Average Payment Period} = \frac{12,500}{\text{COGS per day}} = \frac{12,500}{547.95} \approx 22.83$

4. Verify and Summarize

• COGS per day was computed correctly.
• The average payment period was calculated using the right formula and components.

Final Answer

The average payment period is approximately 22.83 days.