1 answer

Aztec Company sells its product for $170 per unit. Its actual and budgeted sales follow. Units...

Question:

Aztec Company sells its product for $170 per unit. Its actual and budgeted sales follow.

Units Dollars
April (actual) 4,500 $ 765,000
May (actual) 2,000 340,000
June (budgeted) 6,000 1,020,000
July (budgeted) 5,000 1,019,000
August (budgeted) 3,600 612,000

All sales are on credit. Recent experience shows that 24% of credit sales is collected in the month of the sale, 46% in the month after the sale, 25% in the second month after the sale, and 5% proves to be uncollectible. The product’s purchase price is $110 per unit. 60% of purchases made in a month is paid in that month and the other 40% is paid in the next month. The company has a policy to maintain an ending monthly inventory of 23% of the next month’s unit sales plus a safety stock of 185 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,344,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $100,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $100,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 12% interest rate. On May 31, the loan balance is $48,000, and the company’s cash balance is $100,000.
Required: 1. Prepare a schedule that shows the computation of cash collections of its credit sales (accounts receivable) in each of the months of June and July.
2. Prepare a schedule that shows the computation of budgeted ending inventories (in units) for April, May, June, and July.
3. Prepare the merchandise purchases budget for May, June, and July. Report calculations in units and then show the dollar amount of purchases for each month.
4. Prepare a schedule showing the computation of cash payments for product purchases for June and July.
5. Prepare a cash budget for June and July, including any loan activity and interest expense. Compute the loan balance at the end of each month.

Prepare a cash budget for June and July, including any loan activity and interest expense. Compute the loan balance at the end of each month. (Do not round intermediate calculations. Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round your final answers to the nearest whole dollar value.)

AZTEC COMPANY
Cash Budget
June and July
June July
Beginning cash balance $100,000 $100,000
Cash receipts from customers 592,450 758,200
Total cash available 692,450 858,200
Cash payments for:
Purchases 509,300 562,628
Selling and administrative expenses 112,000 112,000
Interest expense 480
Total cash payments 621,780 674,628
Preliminary cash balance
Additional loan (loan repayment)
Ending cash balance $0 $0
Loan balance
June July
Loan balance - Beginning of month $48,000
Additional loan (loan repayment)
Loan balance - End of month $48,000

Answers

Solutions:

WN Computation of Cash receipts from sales Ooo vo Percent Collected in June July April l May August 24% 46% 25% 24% Credits s

28 July 30 Aztec Company Budgeted Ending Inventory 1 April May Next months Budgeted sales (units) 2000 6000 Ratio of invento

G H I 1 L M N O 55 Amount paid in June Total May July $192,720 For Purchases in: May June July Totals $321,200 $634,700 $308,

.

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