Question

Aztec Company sells its product for $150 per unit. Its actual and budgeted sales follow.

	Units	Dollars
April (actual)	4,500	$	675,000
May (actual)	2,600		390,000
June (budgeted)	6,000		900,000
July (budgeted)	5,000		899,000
August (budgeted)	4,200		630,000

All sales are on credit. Recent experience shows that 30% of credit sales is collected in the month of the sale, 40% 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 18% 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 $1,500,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $110,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $110,000, 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 $44,000, and the company’s cash balance is $110,000.

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.

Required 1 Required 2 Required 3 Required 4 Required 5 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. April May Percent Collected in June July August Credit sales from: April May June July August Amount Collected in May June Total April July August Credit sales from: April May $ 675,000 390,000 900,000 June July August 750,000 630,000 Required 1 Required 2 >

Answer 1

Solutions:

Computation of Cash receipts from sales
			Percent Collected in
		April	May	June	July	August
Credits sales from:
April		30%	40%	26%
May			30%	40%	26%
June				30%	40%	26%
July					30%	40%
August						30%
Computation of Cash receipts from sales
		Amount Collected in
	Total	April	May	June	July	August
Credits sales from:
April	$6,48,000	$2,02,500	$2,70,000	$1,75,500
May	$3,74,400		$1,17,000	$1,56,000	$1,01,400
June	$8,64,000			$2,70,000	$3,60,000	$2,34,000
July	$6,29,300				$2,69,700	$3,59,600
August	$1,89,000					$1,89,000
Totals		$2,02,500	$3,87,000	$6,01,500	$7,31,100	$7,82,600
Aztec Company
Budgeted Ending Inventory
	April	May	June	July
Next month's Budgeted sales (units)	2600	6000	5000	4200
Ratio of inventory to Future sales (percent)	18%	18%	18%	18%
Budgeted "base" ending inventory	468	1080	900	756
Safety Stock	50	50	50	50
Budgeted Ending Inventory	518	1130	950	806
Aztec Company
Merchandise Purchase Budget
	May	June	July
Budgeted Ending Inventory	1130	950	806
Add: Budgeted sales units	2600	6000	5000
Required units of available merchandise	3730	6950	5806
Less: Beginning Inventory	518	1130	950
Budgeted purchases (Units)	3212	5820	4856
Budgeted Cost per unit	$110	$110	$110
Budgeted cost of merchandise purchases	$3,53,320	$6,40,200	$5,34,160