All sales are on credit. Recent experience shows that 26% of credit sales is col
ID: 2564623 • Letter: A
Question
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, 29% in the second month after the sale, and 1% proves to be uncollectible. The product’s purchase price is $110 per unit. All purchases are payable within 14 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 23% of the next month’s unit sales plus a safety stock of 55 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,392,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $120,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $120,000, 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 $34,500, and the company’s cash balance is $120,000.
Aztec Company sells its product for $170 per unit. Its actual and budgeted sales follow. Required: 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 April May June July August Credit sales from ril May June July August Amount Collected in Total April May June July August Credit sales from ril May June July August 1,360,000 544,000 1,020,000 850,000 748,000Explanation / Answer
Percent collected in April may June July August Credit sales from: April 26% 44% 29% May 26% 44% 29% June 26% 44% 29% July 26% 44% August 26% Amount collected in TOTAL April may June July August Credit sales from: April 1,360,000 353600 598400 394400 May 544,000 141440 239360 157760 June 1,020,000 265200 448800 295800 July 850,000 221000 374000 August 748,000 194480 Total Collections 353,600 739,840 898,960 827,560 864,280