Question

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

	Units	Dollars
April (actual)	4,000	$	600,000
May (actual)	2,800		420,000
June (budgeted)	5,500		825,000
July (budgeted)	4,500		824,000
August (budgeted)	3,500		525,000

All sales are on credit. Recent experience shows that 20% of credit sales is collected in the month of the sale, 50% in the month after the sale, 24% in the second month after the sale, and 6% 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 24% of the next month’s unit sales plus a safety stock of 75 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,284,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $150,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $150,000, 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 $47,500, and the company’s cash balance is $150,000.

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.

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.

	Percent Collected in April May June July August Credit sales from: April May June July August Amount Collected in Total April May June July August Credit sales from: April $600,000 May 420,000 June 825,000 July 675,000 August 525,000

Prepare a schedule that shows the computation of budgeted ending inventories (in units) for April, May, June, and July.

	AZTEC COMPANY Budgeted Ending Inventory For April, May, June and July April May June July Next month's budgeted sales (units) Ratio of inventory to future sales Budgeted "base" ending inventory

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.

	AZTEC COMPANY Merchandise Purchases Budgets For May, June, and July May June July Required units of available merchandise Budgeted purchases (units) Budgeted cost of merchandise purchases

Prepare a schedule showing the computation of cash payments for product purchases for June and July.

	Cash payments on product purchases (for June and July) ------------------ Percent Paid in--------------- May June July From purchases in: May June July ------------------ Amount Paid in--------------- Total May June July From purchases in: May June July

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. (Do not round intermediate calculations. Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round your final answers to the nearest whole dollar value.)

	AZTEC COMPANY Cash Budget June and July June July Beginning cash balance Total cash available Cash payments for: Total cash payments Preliminary cash balance Ending cash balance Loan balance June July Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month

Answer 1