Aztec Company sells its product for $160 per unit. Its actual and projected sale

Question

Aztec Company sells its product for $160 per unit. Its actual and projected sales follow.

                         Units Dollars

April (actual)    10,000 $1,600,000

May (actual)        2,600      416,000

June (budgeted) 7,000     1,120,000

July (budgeted)    5,500   880,000

August (budgeted) 4,200 672,000 ________________________________________

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, 26% in the second month after the sale, and 4% 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 21% of the next month’s unit sales plus a safety stock of 75 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,764,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $140,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $140,000, 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 $33,500, and the company’s cash balance is $140,000. (Round final answers to the nearest whole dollar.)

Explanation / Answer

Sales Calcu of Total sales Units Dollars April May June August Sep Oct Nov Dec Total April (actual)     10,000   1600000 160 448000 672000 416000 -64000 1600000 May (actual)        2600 416,000 160 116480 174720 108160 -16640 416000 June (budgeted) 7000 1120000 160 313600 470400 291200 -44800 1120000 July (budgeted) 5500 880000 160 246400 369600 228800 -35200 880000 August (budgeted) 4,200 672,000 160 188160 282240 174720 -26880 672000 Total sales 448000 788480 904320 760960 832320 466240 139520 -26880 4312960 Purchase Calcu of Total sales Units Dollars April (actual)     10000 1100000 May (actual)        2600 286000 June (budgeted) 7000 770000 July (budgeted) 5500 605000 August (budgeted) 4,200 462000 Purchase 3223000 Cost sheet Units Opening stock 75 8250 Purchase 29300 3223000 Sales 29300 4312960 Total 1081710

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