Question

Artec Company sells its product for $190 per unit. Its actual and budgeted sales follow. April (actual) May (actuan June (budgeted) July (budgeted) August (budgeted) Units 9,500 2,800 8,000 7,500 4,100 Dollars $1,805,000 532,000 1,520,000 1,425,000 779,000 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, 29% in the second month after the sale, and 1% proves to be uncollectible The product's purchase price is $110 per unit. All purchases are payable within 11 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 19% of the next month's unit sales plus a safety stock of 50 units. The April 30 and May 31 actual Inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1704,000 and are paid evenly throughout the year in cash. The company's minimum cash balance a month-end is $130,000. This minimum is maintained. If necessary, by borrowing cash from the bank. If the balance exceeds $130,000, 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 $34,500, and the company's cash balance is $130,000

Answer 1

Part 1

	Percent collected in
Credit sales from:	april	may	june	july	august
April	24%	46%	29%
May		24%	46%	29%
June			24%	46%	29%
July				24%	46%
august					24%

		Amount collected in
Credit sales from:	Total	april	may	june	july	august
April	1805000	433200	830300	523450
May	532000		127680	244720	154280
June	1520000			364800	699200	440800
July	1425000				342000	655500
August	779000					186960
	6061000	433200	957980	1132970	1195480	1283260

Part 2

AZTEC COMPANY

Budgeted Ending Inventory

For April, May, June and July

	april	may	june	july
Next month's budgeted sales (units)	2800	8000	7500	4100
Ratio of inventory to future sales	19%	19%	19%	19%
Budgeted "base" ending inventory	532	1520	1425	779
Safety stock	50	50	50	50
Budgeted ending inventory (units)	582	1570	1475	829

Part 3

AZTEC COMPANY

Merchandise Purchases Budgets

For May, June, and July

	may	june	july
Budgeted ending inventory (units)	1570	1475	829
Budgeted unit sales for month	2800	8000	7500
Required units of available merchandise	4370	9475	8329
Budgeted beginning inventory (units)	582	1570	1475
Budgeted purchases (units)	3788	7905	6854
Budgeted cost per unit	110	110	110
Budgeted cost of merchandise purchases	416680	869550	753940

Part 4

Cash payments on product purchases (for June and July)­­­­­­­­­­­­­­­­­­

Percent Paid in­­­­ –

	May	June	July
From purchases in:
May	60%	40%
June		60%	40%
july			60%

Amount Paid in –

		May	June	July
From purchases in:	Total
May	416680	250008	166672
June	869550		521730	347820
july	753940			452364
	2040170	250008	688402	800184

Part 5

AZTEC COMPANY Cash Budget June and July
	June	July
Beginning cash balance	130000	397723
Cash receipts from customers	1132970	1195480
Total cash available	1262970	1593203
Cash disbursements:
Payments on purchases	688402	800184
Selling and administrative expenses	142000	142000
Interest expense	345
Total cash disbursements	830747	942184
Preliminary cash balance	432223	651019
Additional loan (loan repayment)	(34500)
Ending cash balance	397723	651019
Loan balance
	June	July
Loan balance ­ Beginning of month	34500	0
Additional loan (loan repayment)	(34500)	0
Loan balance ­ End of month	0	0

1704000/12 = 142000

34500*12%/12 =345