Question

Aztec Company sells its product for $190 per unit. Its actual and budgeted sales follow.

   Units   Dollars
April (actual)   8,000     $1,520,000   
May (actual)   2,600     494,000   
June (budgeted)   7,500     1,425,000   
July (budgeted)   8,000     1,520,000   
August (budgeted)   4,000     760,000   

All sales are on credit. Recent experience shows that 28% of credit sales is collected in the month of the sale, 42% in the month after the sale, 27% in the second month after the sale, and 3% proves to be uncollectible. The product’s purchase price is $110 per unit. All purchases are payable within 12 days. Thus, 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 21% of the next month’s unit sales plus a safety stock of 180 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,836,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $120,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $120,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 13% interest rate. On May 31, the loan balance is $40,500, and the company’s cash balance is $120,000.

- Prepare a table that shows the computation of cash collections of its credit sales (accounts receivable) in each of the months of June and July.

Percent Collected In:

		April	May	June	July	August
Credit sales from:
April
May
June
July
August

Amount Collected In:

				April	May	June	July	August
		Credit Sales:
		April	$1,520,000
		May	494,000
		June	1,425,000
		July	1,520,000
		August	760,000

B. Prepare a table that shows the computation of budgeted ending inventories (in units) for April, May, June, and July.

AZTEC COMPANY

Budgeted Ending Inventory

For April, May, June, July

	April	May	June	July
Next month's budgeted sales (units)
Ratio Inventory to future sales (percent)
Budgeted "base" ending inventory

c. 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.

Aztec Company

Merchandise Purchases Budgets

For May, June, July

	May	June	July
Required units of available
Budgeted purchases (units)
Budgeted cost of merchandise purchases

d. Prepare a table showing the computation of cash payments on product purchases for June and July.

Cash payments on product purchases for June and July

		-----	Percent Paid In	-------
	Total	May	June	July
From purchases In:
May
June
July

      

		----	Amount Paid In	----
	Total	May	June	July
From purchases in:
May
June
July

e. 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 signs.)

AZTEC COMPANY

CASH BUDGET

JUNE AND JULY

	JUNE	JULY
Beginning cash budget
TOTAL CASH AVAILABLE
Cash Disbursements
Total Cash Disbursements
Preliminary cash balance

ENDING CASH BALANCE:

June:

July:

	LOAN BALANCE
	June	July
Loan Balance (Begininning of month)
Additional Loan (loan payment)
Loan Balance (End of Month)

Answer 1

Percentage Collected in May June July April | August Credit sales from: April | May 28% 42% 28% 27% 42% 28% June 27% 42% 28% July August 27% 42% 28% Amount Collected in May June Total April July 1 August Credit sales from: April 425600 638400 138320 May June July August 1520000 494000 1425000 1520000 760000 410400 207480 1333 80 399000 598500384750 425600 638400 212800 101688011574801235950 425600 776720 AZTEC COMPANY Budgeted Ending Inventory For April, May, June and July April May Next month's budgeted sales (units) 2600 7500 Ratio of inventory to future sales 21% 21% Budgeted "base" ending inventory 546 1575 Safety stock 180 180 Budgeted Ending Inventory 726 1755 June 8000 21% 1680 180 1860 July 4000 21% 840 180 1020 |

May AZTEC COMPANY Merchandise Purchases Budgets For April, May, June and July June July Budgeted Ending Inventory 1755 1860 1020 Add: Budgeted sales 2600 7500 8000 Required units of available merchandise 4355 9360 9020 Less: Beginning inventory 726 1755 1860 Budgeted purchases 3629 7605 7160 Budgeted cost per unit 110 110 110 Budgeted cost of merchandise purchases 399190 836550 7 87600 Cash payments on purchases (for June and July) Percent Paid in May June July From purchases in: May 60% 40% 60% June 40% 60% July Amount Paid in June Total May July From purchases in: May 239514 399190 836550 787600 159676 501930 June July 334620 472560 807180 239514 661606

AZTEC COMPANY Cash Budget June and July June July 120000 281335 1016880 1157480 11368801438815 807180 153000 Beginning cash balance Cash receipts from customers Total available cash Cash disbursements Payments on purchases Selling and administrative expenses Interest expense Total disbursements Premilinary cash balance Additional loan from bank Repayment of loan to bank Ending cash balance Loan Balance 661606 153000 439 815045 321835 960180 478635 40500 0 281335478635 1 July Loan balance-beginning of month Additional loan (loan repayment) Loan balance - end of month June 40500 40500 0 0 0 June Interest Expense = $40,500 * 13% 1/12 = $439