Question

Tried to do some of these and I know I did them wrong. Please help Aztec Company sells its product for $160 per unit. Its actual and budgeted sales follow.

	Units	Dollars
April (actual)	4,000	$640,000
May (actual)	1,800	$288,000
June (budgeted)	5,000	$800,000
July (budgeted)	4,000	$799,000
August (budgeted)	3,800	$608,000

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, 24% in the second month after the sale, and 6% 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 22% of the next month’s unit sales plus a safety stock of 175 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,404,000 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 14% interest rate. On May 31, the loan balance is $42,500, and the company’s cash balance is $110,000. 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 May June July April August 29% Credit sales from: April May June July August 42% 29% 42% 28% 28% Amount Collected in May June July Total April August Credit sales from: April May June July August $ 560,000 384.0001 1,280,000 800.000 640.000

Answer 1

Solutions:

Computation of Cash receipts from sales
			Percent Collected in
		April	May	June	July	August
Credits sales from:
April		28%	42%	24%
May			28%	42%	24%
June				28%	42%	24%
July					28%	42%
August						28%
Computation of Cash receipts from sales
		Amount Collected in
	Total	April	May	June	July	August
Credits sales from:
April	$6,01,600	$1,79,200	$2,68,800	$1,53,600
May	$2,70,720		$80,640	$1,20,960	$69,120
June	$7,52,000			$2,24,000	$3,36,000	$1,92,000
July	$5,59,300				$2,23,720	$3,35,580
August	$1,70,240					$1,70,240
Totals		$1,79,200	$3,49,440	$4,98,560	$6,28,840	$6,97,820
Aztec Company
Budgeted Ending Inventory
	April	May	June	July
Next month's Budgeted sales (units)	1800	5000	4000	3800
Ratio of inventory to Future sales (percent)	22%	22%	22%	22%
Budgeted "base" ending inventory	396	1100	880	836
Safety Stock	175	175	175	175
Budgeted Ending Inventory	571	1275	1055	1011
Aztec Company
Merchandise Purchase Budget
	May	June	July
Budgeted Ending Inventory	1275	1055	1011
Add: Budgeted sales units	1800	5000	4000
Required units of available merchandise	3075	6055	5011
Less: Beginning Inventory	571	1275	1055
Budgeted purchases (Units)	2504	4780	3956
Budgeted Cost per unit	$110	$110	$110
Budgeted cost of merchandise purchases	$2,75,440	$5,25,800	$4,35,160
Cash payment on product purchases (for June and July)
		Percent paid in
		May	June	July
For Purchases in:
May		60%	40%
June			60%	40%
July				60%
		Amount paid in
	Total	May	June	July
For Purchases in:
May	$2,75,440	$1,65,264	$1,10,176
June	$5,25,800		$3,15,480	$2,10,320
July	$2,61,096			$2,61,096
Totals		$1,65,264	$4,25,656	$4,71,416
Aztec Company
Cash Budget
June and July
	June	July
Beginning cash balance	$1,10,000	$1,10,000
Cash receipts from sales	$4,98,560	$6,28,840
Total Cash available	$6,08,560	$7,38,840
Cash disbursements:
Payment for purchases	$4,25,656	$4,71,416
Selling and administrative expenses	$1,17,000	$1,17,000
Interest expense	$496	1016
Total Cash disbursements	$5,43,152	$5,89,432
Preliminary cash balance	$65,408	$1,49,408
Additional Loan (Loan repayment)	$44,592	-$39,408
Ending cash Balance	$1,10,000	$1,10,000
Loan Balance
	June	July
Loan Balance- Beginning of month	$42,500	$87,092
Additional Loan (Loan repayment)	$44,592	-$39,408
Loan Balance- End of month	$87,092	$47,684