Aztec Company sells its product for $180 per unit. Its actual and projected sale
ID: 2453659 • Letter: A
Question
Aztec Company sells its product for $180 per unit. Its actual and projected sales follow. Units Dollars April (actual) 4,000 $ 720,000 May (actual) 2,000 360,000 June (budgeted) 6,000 1,080,000 July (budgeted) 5,000 900,000 August (budgeted) 3,800 684,000 All sales are on credit. Recent experience shows that 20% of credit sales is collected in the month of the sale, 50% 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 12 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 20% of the next month’s unit sales plus a safety stock of 100 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,320,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $100,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $100,000, 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 $25,000, and the company’s cash balance is $100,000. (Round final answers to the nearest whole dollar.) 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. 2. Prepare a table that shows the computation of budgeted ending inventories (in units) for April, May, June, and July. 3. Prepare the merchandise purchases budget for May, June, and July. Report calculations in units and then show the dollar amount of purchases for each month. 4. Prepare a table showing the computation of cash payments on product purchases for June and July. 5. 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.
Explanation / Answer
Months April May June July August Unit sales 4,000 2,000 6,000 5,000 3,800 $ Sales Revenue 720,000 360,000 1,080,000 900,000 684,000 Months April May June July August Cash Collection Total Colletion of April 144,000 360,000 201,600 705,600 Colletion ofMay 72,000 180,000 100,800 352,800 Colletion of June 216,000 540,000 302,400 1,058,400 Colletion of Jul 180,000 450,000 630,000 Colletion of Aug 136,800 136,800 1 Total Collection 144,000 432,000 597,600 820,800 889,200 2,883,600 Bad debt expense 14,400 7,200 21,600 18,000 13,680 Months April May June July August Unit sales 4,000 2,000 6,000 5,000 3,800 2 Add required Closing stock 500 1,300 1,100 860 Less: Opening Stock 500 1,300 1,100 860 Required Purchase units 2,800 5,800 4,760 3 Purchase value @$110/unit 308,000 638,000 523,600 Payment for purchases May 184,800 123,200 Payment for purchases June 382,800 255,200 Payment for purchases Jul 314,160 209,440 4 Total Payment Purchase 184,800 506,000 569,360 209,440 Cash Pyment forGeneral & Admin expense 110,000 110,000 110,000 110,000 110,000 5 Cash Budget Months April May June July August Opening Balance 100,000 100,000 Cash Collections 597,600 820,800 Cash Payment Purchase 506,000 569,360 Payment Gen &Admin exp 110,000 110,000 Total Payments 616,000 679,360 Balance before loan 81,600 241,440 Loan 18,400 (43,400) Cash Balance 100,000 198,040 Loan Balance 25,000 43,400 - Loan Interest 250 434
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