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

Answer 1

Solutions:

WN Computation of Cash receipts from sales Ooo vo Percent Collected in June July April l May August 24% 46% 25% 24% Credits sales from: April May June July August 46% 24% 25% 46% 24% 25% 46% 24% 14 15 16 17 Computation of Cash receipts from sales Amount Collected in Total April May June I May Amount Collected in July August $183,600 $351,9001 $81,600 Credits sales from: April May June July August Totals $726,750 $323,000 $969,000 $713,300 $146,880 $191,250 $156,400 $244,800 $85,000 $469,200 $244,560 $255,000 $468,740 $146,880 $870,620 $183,600 $433,500 $592,450 $798,760 25 26 27 Aztec Company Sheet434 (3) Sheet276 Sheet275 Sheet277 Sheet278 Sheet181 (30) Sheet181 (31)

28 July 30 Aztec Company Budgeted Ending Inventory 1 April May Next month's Budgeted sales (units) 2000 6000 Ratio of inventory to Future sales (percent) 23% 23% Budgeted "base" ending inventory 460 1380 Safety Stock 185 Budgeted Ending Inventory 645 1565 June 5000 23% 1150 3600 23% 828 185 1013 185 185 34 1335 36 July 40 41 42 43 Aztec Company Merchandise Purchase Budget May Budgeted Ending Inventory 1565 Add: Budgeted sales units 2000 Required units of available merchandise 3565 Less: Beginning Inventory 645 Budgeted purchases (Units) 2920 Budgeted Cost per unit $110 Budgeted cost of merchandise purchases $321,200 June 1335 6000 7335 1565 5770 $110 $634,700 1013 5000 6013 1335 4678 $110 $514,580 45 48 49 Cash payment on product purchases (for June and July) Percent paid in May June July 51 60% For Purchases in: May June July 40% 60% 40% 60% w Sheet434 (3) Sheet276 ) Sheet181 (30) Sheet181 (31) Sheet275 III Sheet277 0 Sheet278 s

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 $308,748 $128,480 $380,820 $253,880 $308,748 $562,628 $192,720 $509,300 Aztec Company Cash Budget June and July July June $100,000 $592,450 $692,450 $100,000 $798,760 $898,760 Beginning cash balance Cash receipts from sales Total Cash available Cash disbursements: Payment for purchases Selling and administrative expenses Interest expense Total Cash disbursements $509,300 $112,000 $480 $621,780 $562,628 $112,000 773 $675,401 Preliminary cash balance Additional Loan (Loan repayment) Ending cash Balance Loan Balance $70,670 $29,330 $100,000 $223,359 -$123,359 $100,000 Loan Balance - Beginning of month Additional Loan (Loan repayment) Loan Balance - End of month June $48,000 $29,330 $77,330 July $77,330 $123,359 -$46,029 86 87 Sheet434 (3) Sheet276 ) Sheet275 Sheet277 ) Sheet278 Sheet181 (30) Sheet181 (31)