Question

Help Aztec Company sells its product for $160 per unit. Its actual and budgeted sales follow April (actual) May (actual) June (budgeted) July (budgeted) August (budgeted) 4,000 2.000 5.000 4.000 4,000 Dollars $ 640,000 320,000 800,000 799,000 640,000 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 vear in cash. The company's minimum cash balance at month-end is $140,000. This minimum is maintained 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. Complete this question by entering your answers in the tabs below

Answer 1

solution: april august credit sales from April may june Percent collected in may june July 26% 44% 26% 26% 44% | | | 26% 26% 44% 26% July 26% 44% 26% august credit sales from april July august Amount collected in may 166,400 281,600 83,200 April june 166,400 140,800 208,000 640,000 320,000 800,000 799,000 640,000 may june July august 83,200 352,000 207,740 208,000 351,560 166,400 725,960 166,400 364,800 515,200 642,940 2) Budgeted ending inventory april may next months budgted sales (units) ratio of inventory to future sales budgeted base ending inventory safety stock budgeted ending inventory (units) 2,000 22.00% 440 195 5,000 22.00% 1,100 195 1,295 june 4,000 22.00% 880 195 1,075 July 4,000 22.00% 880 195 1,075 635

june 3.) merchandise purchase budget may budget ending inventory(units) 1,295 budgeted units sales for month 2,000 required units of available merchandise 3,295 budgeted beginning inventory(units) 635 budgeted purchases (units) 2,660 x budgeted cost per unit 110 budgeted cost of merchandise purchases | 292,600 1,075 5,000 6,075 1,295 4,780 110 525,800 July 1,075 4,000 5,075 1,075 4,000 110 440,000 Percent paid in may june 4) cash payment from purchase in may 60% 40% 60% june 40% 60% July Total may j une July 4) cash payment from purchase in may 175,560 hba 292,600 525,800 440,000 117,040 315,480 July 210,320 264,000 474,320 175,560 432,520

June July 140,000 515,200 655,200 140,000 642,940 782,940 5.cash budget Beg cash balance add : cash receipts total cash available cash disbursement: cash payment for merchandise sales commision = 1524000/12 Interest on loan* total cash disbursement 432,520 127,000 312 559,832 474,320 127,000 721 602,041 Preliminary cash balance additional loan (Loan repayment) ending cash balance 95,368 44,632 140,000 180,899 40,899 140,000 June July Loan balance Loan balance - beg. Of month additional loan (loan repayment) Loan balance -end of month 34,000 44,632 78,632 78,632 40,899 37,732 June June July 44632*11%*1/12 | 78632*11%* 1/12 *Interest on loan