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CMA Intermediate · Financial Management and Business Data Analytics · Payable Management

A finance analyst at Rao Foods Ltd plots the days payable outstanding (DPO) of 40 suppliers in a histogram and finds the distribution strongly right-skewed with a few suppliers paid after 150 days. Which summary measure best describes the typical payment period for reporting to management?

The median is the best measure. In a right-skewed distribution of payment days, a few very late payments inflate the mean, whereas the median stays at the central value and gives a more realistic picture of the typical supplier payment period.

  1. AMedian, because it is not distorted by the few very long payment periodsCorrect
  2. BMean, because it uses every value including the extreme ones
  3. CRange, because it captures the full spread of payment days
  4. DMode of the bucketed data, because it is always the same as the mean

Explanation

In a right-skewed distribution, extreme high values pull the mean upward, so the median represents the typical supplier better. The mean overstates typical days. The range shows spread rather than a typical value. The mode equals the mean only in symmetric unimodal distributions, not here.

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