All sales are on credit. Recent experience shows that 28% of credit sales is col
ID: 2498404 • 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. Percent collected in Credit Sales from April , May, June, July August is what is needed.
4. Prepare a table showing the computation of cash payments on product purchases for June and July. Percent Paid in from purchases in May, June and July is what is needed.
Explanation / Answer
Answer:
Computation of Cash Collections from Credit Sales;
Computation of Cash Payments on Product Purchases;
Particulars April May June July August Sales $ 810,000 $ 648,000 $ 1,260,000 $ 1,440,000 $ 756,000 Collection from Debtors in June and July; Out of Sales of April 28% of April Sales = $ 226,800 NIL Out of Sales of May 42% of May Sales = $ 271,160 28% of May Sales = $ 181,440 Out of Sales of June 28% of June Sales = $ 352,800 42% of June Sales = $ 529,200 Out of Sales of July NIL 28% of July Sales = $ 403,200 Total Cash Collections from Credit Sales $ 850,760 $ 1,113,840