Question

Problem 22-7AA Merchandising: Preparation and analysis of cash budgets with supporting inventory and purchases budgets LO P4 Aztec Company sells its product for $160 per unit. Its actual and budgeted sales follow. April (actual) May (actual) June (budgeted) July (budgeted) August (budgeted) Units 4,000 1,800 5,500 4,500 4,100 Dollars $ 640,000 288,000 880,000 879,000 656,000 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, 28% in the second month after the sale, and 2% proves to be uncollectible. The product's purchase price is $110 per unit. 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 160 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,440,000 and are paid evenly throughout the year in cash. The company's minimum cash balance at month-end is $110,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $110,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 13% interest rate. On May 31, the loan balance is $30,500, and the company's cash balance is $110,000. Required: 1. Prepare a schedule 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 schedule 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 schedule showing the computation of cash payments for 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.

Show transcribed image text

Answer 1

August schedule of cr. Sales - credit sales from April April 261 May June - July August Collections: collected in May June 444 281. 261. 444. - 261. - - July - 281. 441. - - - 287 - - - 26:1 credir April sales from May Amount_collected in ($) Total April May sune July August $640000 166400281600 179200 - 288000 74680 126720 80640 880000 - - 228800_387200_246400 720000 __- - 187200 316800_ 170570 June July Augus 6.56000 166400356480 534120655040 733760 2. inventories for the said months June 4500 July 4100 CND Schedule of computation of ending (Budgered). April May Next monin budgered 1,800 5500 Sales (in UniH 1. of ending inventory 231 231 NOg_uning_ 414 1265 (t) safely stock - 160 160 (Budgeted base inventory) cosing lending 574 1425 inventory 234 1035 160 234. 943 160 1195 1103

3. schedule of merchandise purchases budget May 574 for the said months: July 1195 (4.500) Opening inventory on V) (-) Sales (budgeted) 1425 (5500) CL800 CN) (1425) (1195) (1103) 2651 5270 4408 - closing inventory Shortage - Required units a of merchandise purchasesc budgere ) Purchase price p.u. Budgeted cost of 7 merchandise purchase $10 $ 110 $ 110 291610 579700 484-880 schedule of payments of purchases. --- paid in June From purchases in Mag June 60Y 401 601 401 60 paid in- June July - Amount Total May from purchases in a $291610 174966 579 100 May June سیر 116644 341820231890 290928 464464 522808 484 880 174966