Question

Aztec Company sells its product for $160 per unit. Its actual and budgeted sales follow.

	Units	Dollars
April (actual)	4,000	$	640,000
May (actual)	2,000		320,000
June (budgeted)	5,000		800,000
July (budgeted)	4,000		799,000
August (budgeted)	4,000		640,000

All sales are on credit. Recent experience shows that 26% of credit sales is collected in the month of the sale, 44% in the month after the sale, 26% in the second month after the sale, and 4% 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 22% of the next month’s unit sales plus a safety stock of 195 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,524,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $140,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $140,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 11% interest rate. On May 31, the loan balance is $34,000, and the company’s cash balance is $140,000.

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.

Answer 1

1.

Cash Collections Budget
	June	July	Total
Collections from Sales of April	$       1,66,400		$         1,66,400
Collections from Sales of May	$       1,40,800	$        83,200	$         2,24,000
Collections from Sales of June	$       2,08,000	$     3,52,000	$         5,60,000
Collections from Sales of July		$     2,07,740	$         2,07,740
Total Cash Collections	$      5,15,200	$     6,42,940	$      11,58,140

2.

	April	May	June	July	August
Sales units	4000	2000	5000	4000	4000
Ending Inventory @22%	440	1100	880	880
Safety Stock	195	195	195	195
Desired Ending Inventory	635	1295	1075	1075

3.

Merchandise Purchase Budget
	May	June	July
Sales units	2000	5000	4000
Add : Desired Ending Inventory	1295	1075	1075
Total Units required	3295	6075	5075
Less : Beginning Inventory	635	1295	1075
Units to be purchased	2660	4780	4000
Cost per unit	$                110	$              110	$                  110
Purchase Cost	$      2,92,600	$     5,25,800	$         4,40,000

4.

Cash Payments for Product Purchases
	June	July
Paid in Same month	$       3,15,480	$     2,64,000
Paid in following month	$       1,17,040	$     2,10,320
Total Cash Payments	$      4,32,520	$     4,74,320

As per HOMEWORKLIB RULES, we are suppose to answer 4 parts, i have answered 4, so kindly post other part separately with this solution