Question

ABC Inc. has a 59-day average payables period. The accounts payable are $2,737.50 at the beginning and $3,589.50 at the end of the covering year. What is the annual cost of goods sold? Use a 365-day year when calculating the APP. (Hint: use average accounts payable)

a) $17,265
b) $19,571
c) $20,123
d) $18,992

Answer 1

The annual cost of goods sold for ABC Inc. is calculated using the average accounts payable and the average payables period formula. With the given accounts payable figures and a 59-day APP, the COGS is found to be $19,571.

Step-by-step explanation:

To calculate the annual cost of goods sold (COGS) using the average payables period (APP), first, we determine the average accounts payable. The average accounts payable is the sum of the beginning and ending accounts payable divided by 2, which equals ($2,737.50 + $3,589.50) / 2 = $3,163.50. The APP formula is:
APP = (Average Accounts Payable / COGS) × 365 days.

To find COGS, we rearrange the formula:
COGS = (Average Accounts Payable / APP) × 365 days.
Inserting the given values gives us:
COGS = ($3,163.50 / 59 days) × 365 days = $19,571.

Therefore, the annual cost of goods sold for ABC Inc. is $19,571.