All sales are on credit. Recent experience shows that 28% of credit sales is col
ID: 2498888 • 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.
Explanation / Answer
Cash collections of accounts receivable during June and July
April May June July Sales 810,000 648,000 1,260,000 1,440,000 Collections April sales 226,800 340,200 226,800 May sales 181,440 272,160 181,440 June sales 352,800 5,29,200 July sales 403,200 851,760 1,113,840