Purchases made in December will affect the end of December balance of accounts payable, as all payments are made in the month following purchase. Purchases made in November (and the November 30 accounts payable balance) will not have an effect on December 31 accounts payable, as they will have been fully paid during December. Thus, we need to determine the amount of purchases to be made in December. Purchased components are 40% of the cost of goods sold and cost of goods sold is 80% of sales. Purchases made in December will be 80% of the components needed for January sales, and 20% of the components needed for December sales. The components needed for January sales will be 40% of 80% of January sales, or $500,000 × .80 × .40 = $160,000. The purchases made in December of components for January sales will be 80% of that, or $128,000. The components needed for December sales will be 40% of 80% of December sales, or $520,000 × .80 × .40 = $166,400. The purchases made in December of components for December sales will be 20% of that, or $33,280. Adding these two numbers together we get the projected balance in Accounts Payable for December of $161,280 ($128,000 + $33,280).
This is the cost of goods sold in December ($520,000 × .80). See the correct answer for a complete explanation.
This is the cost of components in cost of goods sold in December ($520,000 × .80 × .40 = $166,400). The balance in accounts payable at December 31 will be equal to the amount of purchases made during December, since all outstanding payables at November 30 will have been paid before the end of December. See the correct answer for a complete explanation.
This answer represents the total components needed for January sales ($160,000) plus the total components needed for December sales ($166,400). The balance in accounts payable at December 31 will be equal to the amount of purchases made during December, since all outstanding payables at November 30 will have been paid before the end of December. Only 80% of the components needed for January sales will have been purchased during December, and only 20% of the components needed for December sales will have been purchased during December.
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Additional information regarding Super Drive's operations include the following: Sales are budgeted at $520,000 for December and $500,000 for January of the next year. Collections are expected to be 60% in the month of sale and 40% in the month following the sale. 80% of the disk drive components are purchased in the month prior to the month of sale, and 20% are purchased in the month of sale. Purchased components are 40% of the cost of goods sold. Payment for the components is made in the month following the purchase. Cost of goods sold is 80% of sales. The projected balance in accounts payable on December 31 is