Question

Aztec Company sells its product for $160 per unit. Its actual and budgeted sales follow. Units Dollars April (actual) 5,000 $ 800,000 May (actual) 2,000 320,000 June (budgeted) 4,500 720,000 July (budgeted) 3,500 719,000 August (budgeted) 3,900 624,000 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 19% of the next month’s unit sales plus a safety stock of 95 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,380,000 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. 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.

Answer 1

	Units	Dollars
April (actual)	5000	$800,000
May (actual)	2000	320000
June (budgeted)	4500	720000
July (budgeted)	3500	719000
August (budgeted)	3900	624000
Schedule of Expected Cash Collections
	June	July
Total sales T	$720,000	$719,000
Collection from Accounts receivable
April sales (800000*26%)	$208,000
May sales (320000*.44/.26)	$140,800	$83,200
June sales (720000*.26 and .44)	$187,200	$316,800
July sales (719000*.26)		$186,940.00
Total Collections	$536,000	$586,940
ans 2
Budgeted ending inventories (in units) for April, May, June, and July
	April	May	June	July	August
expected sales in units	5000	2000	4500	3500	3900
Add Desired Ending Inventory (19%*next month sales)+95	475	950	760	836
ans 3
Merchandise Purchases Budget
	April	May	June	July	August
expected sales in units	5000	2000	4500	3500	3900
Add Desired Ending Inventory (19%*next month sales)+95	475	950	760	836
Total Needs	5475	2950	5260	4336
Less Beginning Inventory	1045	475	950	760
Required Purcahses in units	4430	2475	4310	3576
Cost price per unit	110	110	110	110
Total required purchases	487300	272250	474100	393360
Schedule of Expected Cash Disbursements- Merchandise Purchases
(60% in next month and 40% second in next month)	June	July
Payment to Accounts payable (272250*.4)	$108,900
June Purchases (474100*.6 and .4)	$284,460	$189,640
JUly purchases		$236,016
Total Disbursements	$393,360	$425,656
Cash Budget
	June	July
Beginnning Cash Balance	100,000	$100,000
Add Cash Collections	536,000	586,940
Total Cash Avail	636,000	686,940
Less Cash Disbursements
For Inventory	$393,360	$425,656
For Selling & adm Expenses	115000	115000	(1380000/12)
Interest expenses (47500*14%*1/12)	554	316.0	(27086*1/12*14%)
Total Cash Disbursements	$508,914	$540,972
Excess of cash available over cash disbursement	$127,086	$145,968
Minimum bal	$100,000	$100,000
Financing:
Borrowings
Repayments:	($27,086)	($20,414)
Total Financing	-27086	-20414
Ending Cash Balance	$100,000	$125,554
Loan balance
Beginning	$47,500	27086
Ending	27086	0
If any doubt please comment