Limitless Styles has a 45 day accounts payable period. The firm has expected sales of $900, $1,200, $1,900, and $2,600, respectively, by quarter for the next calendar year. The cost of goods sold for a quarter is equal to 70% of the next quarter sales. The firm has a beginning payables balance of $600 as of quarter one. What is the amount of the projected cash disbursements for accounts payable for Quarter 3 of the next year? Assume that a year has 360 days.

Question

Quizplus · Accepted Answer

The cost of goods sold (COGS) for Quarter 3 is equal to 70% of Quarter 4 sales. Quarter 4 sales are projected to be $2,600, so COGS for Quarter 3 = 0.70 * $2,600 = $1,820. Since the accounts payable period is 45 days, the firm pays its invoices from the previous quarter in the current quarter. Therefore, the cash disbursements for accounts payable in Quarter 3 will be for the COGS of Quarter 2, which is 70% of Quarter 3 sales ($1,900). So, COGS for Quarter 2 = 0.70 * $1,900 = $1,330. However, since the question asks for the disbursements in Quarter 3, we consider the COGS calculated for Quarter 3 ($1,820) as a mistake in the explanation process. The correct calculation should focus on the payments made in Quarter 3 based on the COGS of Quarter 2, which is indeed $1,330, but since none of the options match this calculation directly and considering the process to find the cash disbursements for Quarter 3, we need to correct the explanation to align with the provided options and the correct calculation method. The correct approach involves calculating the payments made in Quarter 3, which would typically involve considering the COGS of Quarter 2 as the basis for Quarter 3 payments, aligning with the accounts payable period. However, without direct information on payment schedules or adjustments for the beginning payables balance, the calculation provided initially leads to confusion. The correct answer should be based on the COGS relevant to the payments made in Quarter 3, considering the accounts payable cycle and any beginning balances or adjustments specified in the question. Given the misunderstanding in the explanation, the focus should be on clarifying the payment cycle and how the beginning payables balance or any other adjustments might affect the cash disbursements for Quarter 3, directly addressing the question's requirements.

Limitless Styles Has a 45 Day Accounts Payable Period