All sales are on credit. Recent experience shows that 28% of credit sales is col
ID: 2497813 • Letter: A
Question
All sales are on credit. Recent experience shows that 28% of credit sales is collected in the month of the sale, 42% in the month after the sale, 28% in the second month after the sale, and 2% proves to be uncollectible. The product's purchase price is $110 per unit. All purchases are payable within 13 days. Thus, 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 115 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,788,000 and are paid evenly throughout the year in cash. The company's minimum cash balance at month-end is $130,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $130,000, 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 $42,500, and the company's cash balance is $130,000.
Aztec Company sells its product for $180 per unit. Its actual and projected sales follow.
April (actual) Units 4,500 Dollars $810,000
May (actual) Units 3,600 Dollars $648,000
June (budgeted) Units 7,000 Dollars $1,260,000
July (budgeted) Units 8,000 Dollars $1,440,0000
August (budgeted) Units 4,200 Dollars $756,000
1. Prepare a table 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 table that shows the computation 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 table showing the computation of cash payments on 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.
Explanation / Answer
Cash Collection April May June July August Sales 810000 648000 1260000 140000 756000 Cash Collection April Sales 226800 340200 226800 May Sales 181440 272160 181440 June Sales 352800 529200 352800 July Sales 39200 58800 August Sales 211680 Total Collection of cash 226800 521640 851760 749840 623280 Inventory Budget April May June July August Sale units 4500 3600 7000 8000 4200 Opening Inventory 970 799 1445 1635 913 Closing Inventory 799 1445 1635 913 Merchandise Purchase Budget May June July Sale units 3600 7000 8000 Opening Inventory 799 1445 1635 Closing Inventory 1445 1635 115 Purchase units 4246 7190 6480 Purchase Value 467060 790900 712800 Cash Payment on purchase June July May purchase payment 186824 June Purchase Payment 474540 July Purchase Payment 427680 Total Payment 661364 427680 Cash Budget June July Opening Balance 87500 130000 Loan 42500 1599.83 Total Cash availlable 130000 130000 Cash Collection 851760 749840 Cash Payment -661364 -427680 Selling and admin OH -149000 -149000 Interest on loan -495.83 -18.66472 Balance 170900.17 303141.34 Loan Repayment 40900.17 1599.83 Cash Balance 130000 301541.51