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

Question

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

All sales are on credit. Recent experience shows that 22% of credit sales is collected in the month of the sale, 48% in the month after the sale, 27% in the second month after the sale, and 3% 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 21% of the next month’s unit sales plus a safety stock of 185 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,944,000 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 13% interest rate. On May 31, the loan balance is $49,500, and the company’s cash balance is $120,000.

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.

Units Dollars April (actual) 4,000 $ 640,000 May (actual) 2,400 384,000 June (budgeted) 5,000 800,000 July (budgeted) 4,000 799,000 August (budgeted) 4,000 640,000 Required 1Required 2 Required 3 Required 4 Required 5 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. Percent Collected in April May June July August Credit sales from April May June July August

Explanation / Answer

EXPECTED CASH COLLECTIONS April May June July August Credit sales: April Month sales 140,800 307200 172800 May month sales 84480 184320 103,680 June Month sales 176000 384,000 216000 July 175,780 383520 August 140800 Total Cash Collections 140,800 391,680 533,120 663,460 740,320 RAW MATERIAL PURCHASE BUDGET May June July Budgeted ending invventory 1,235 1,025 1,025 budgeted Beginning inventory -689 -1,235 -1,025 Required units of available merchandise 546 -210 0 Budgeted Units sales 2,400 5,000 4,000 Budgeted Purchase units 2,946 4,790 4,000 Cost per unit 110 110 110 Budgeted Purchase in $ 324,060 526,900 440,000

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