Question

Need required 4 and 5 only **********

Problem 22-7AA Merchandising: Preparation and analysis of cash budgets with supporting Inventory and purchases budgets LO P4 Aztec Company sells its product for $150 per unit. Its actual and budgeted sales follow. April (actual) May (actual) June (budgeted) July (budgeted) August (budgeted) Units 3,500 2,400 5,500 4,500 4,400 Dollars $ 525,000 360,000 825,000 824,000 660,000 : 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 19% of the next month's unit sales plus a safety stock of 155 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,260,000 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 14% interest rate. On May 31, the loan balance is $47.500, 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 13. 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. 3. 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

Percentage Collected in May June July April August Credit sales from: April 24% 46% 24% 25% 46% 24% |May June July August 25% 46% 24% 25% 46% 24% Amount Collected in May June June Total April July August 126000 131250 241500 86400 165 600 90000 Credit sales from: April |May June July August 525000 360000 825000 824000 660000 198000 379500 197760 206250 379040 158400 743690 126000327900494850667260 July AZTEC COMPANY Budgeted Ending Inventory For April, May, June and July April May Next month's budgeted sales (units) 2400 5500 Ratio of inventory to future sales 19% 19% Budgeted "base" ending inventory 1045 Safety stock 155 155 Budgeted Ending Inventory 611 1200 June 4500 19% 855 155 4400 19% 836 456 155 1010 991

AZTEC COMPANY Merchandise Purchases Budgets For April, May, June and July May Budgeted Ending Inventory 1200 Add: Budgeted sales 2400 Required units of available merchandise 3600 Less: Beginning inventory 611 Budgeted purchases 2989 Budgeted cost per unit 110 Budgeted cost of merchandise purchases 328 790 June July 1010 991 5500 4500 6510 5491 1200 1010 5310 4481 110 110 584100492910 Cash payments on purchases (for June and July) Percent Paid in May June July 60% From purchases in: May June July 40% 60% 40% 60% Amount Paid in June Total May July 1972 74 From purchases in: May June July 328 790 584100 492910 L131516 350460 233640 295746 529386 197274 481976

AZTEC COMPANY Cash Budget June and July July June 100000 494850 594850 100000 66 7260 767260 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 481976 105000 554 587530 73 20 529386 105000 1635 636021 131239 -31239 92680 100000 100000 Loan balance - beginning of month Additional loan (loan repayment) Loan balance - end of month June July 47500 140180 92680 -31239 140180108942 June Interest Expense = $47,500 * 14%* 1/12 = $554 July Interest Expense = $140,180 * 14%* 1/12 = $1,635