Aztec Company sells its product for $160 per unit. Its actual and projected sale
ID: 2417263 • Letter: A
Question
Aztec Company sells its product for $160 per unit. Its actual and projected sales follow.
Units
Dollars
April (actual)
8,000
$1,280,000
May (actual)
1,800
288,000
June (budgeted)
6,000
960,000
July (budgeted)
6,000
960,000
August (budgeted)
4,300
688,000
All sales are on credit. Recent experience shows that 24% of credit sales is collected in the month of the sale, 46% 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 60 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,824,000 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 $41,500, and the company’s cash balance is $120,000. (Round final answers to the nearest whole dollar.)
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.)
Aztec Company sells its product for $160 per unit. Its actual and projected sales follow.
Explanation / Answer
Purchases ( In units ) during the month May June July Opening Units 402 1200 1200 Closing Units 1200 1200 877 sales 1800 6000 6000 Purchases during the month 2598 6000 5677 Cash Budget for June & July June July Cash balance 120000 17053 Cash Receipts 721280 752640 Cash Payments for Purchases 510312 638682 Selling & Admin expense 152000 152000 Cash Balance at the month end 178968 -20989 Minimum Cash Bal required 120000 120000 Extra Cash 58968 0 Loan amount 41500 140989 Interest @1% 415 0 Cash Balance after loan repayment 17053 0 Loan balance 0 140989 Cash Payments During June & July ( In $ ) June =(2598*0.4*110)+(6000*0.6*110) 510312 July =(6000*110*0.4)+(5677*0.6*110) 638682
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