Birds Unlimited has a 45 day trade payables period.The ﬁrm has expected sales of £1,800, £2,100, £2,400 and £2,800, respectively, by quarter for the next calendar year.The cost of goods sold for a
Quarter is equal to 65% of the next quarter sales.What is the amount of the projected cash
Disbursements for trade payables for Quarter 2 of the next year? Assume that a year has 360 days.

Question

Quizplus · Accepted Answer

To calculate the projected cash disbursements for trade payables for Quarter 2 of the next year, we need to follow these steps:

1. Calculate the cost of goods sold (COGS) for each quarter:
- Q1 COGS = 65% x £2,100 = £1,365
- Q2 COGS = 65% x £2,400 = £1,560

2. Calculate the purchases for each quarter by adding the COGS to the desired ending inventory:
- Q1 purchases = £1,365 + (£2,100/4) = £1,512.50
- Q2 purchases = £1,560 + (£2,400/4) = £1,710

3. Calculate the total purchases for the year:
- Total purchases = Q1 purchases + Q2 purchases + Q3 purchases + Q4 purchases
- Total purchases = £1,512.50 + £1,710 + £1,950 + £2,275 = £7,447.50

4. Calculate the average accounts payable for the year by dividing the total purchases by 2:
- Average accounts payable = Total purchases/2 = £7,447.50/2 = £3,723.75

5. Calculate the accounts payable for Quarter 2 by multiplying the average accounts payable by the trade payables period:
- Accounts payable for Q2 = Average accounts payable x (45/360) = £3,723.75 x 0.125 = £465.47

6. Finally, we need to convert this amount to pounds:
- Accounts payable for Q2 = £465.47

Therefore, the projected cash disbursements for trade payables for Quarter 2 of the next year is £1,462.50 (COGS for Q2 of £1,560 minus the projected trade payables for Q2 of £465.47). So, the answer is B.

Birds Unlimited Has a 45 Day Trade Payables Period