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)

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 the merchandise purchases budget for May, June, and July. Report calculations in units and then show the dollar amount of purchases for each month.

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

Explanation / Answer

calculation purchases budget

particulars may june july required production units 1,800 6,000 6,000 closing inventory 6,000*19%+60=1,200 6000*19%+60=1,200 4,300*19%+60=877 opening inventory 1800*19%+60=402 1,200 1,200 units to be purchased 1,800+1,200-402=2,598 6,000 5,677 cost per unit 110 110 110 purchses cost 285,780 660,000 624,470

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