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:

4. Prepare a schedule showing the computation of cash payments for product purchases for 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 1 Required 2 Required 3Required 4 Required 5 Prepare a schedule showing the computation of cash payments for product purchases for June and July. Cash payments on product purchases (for June and July) Percent Paid in.... May June July From purchases in May June July Amount Paid in Total May June July From purchases in: May June July

Explanation / Answer

Cash payment on purchases (for june & july) Perccent paid in May June July From purchases in: May 60% 40% June 60% 40% July 60% Amount paid in Total may june july From purchases in: May $ 3,24,060 $ 1,94,436 $ 1,29,624 June $ 5,26,900 $ 3,16,140 $ 2,10,760 July $ 2,64,000 $ 2,64,000 $ 4,45,764 $ 4,74,760 Budgeted/Actual Purchases May June July Sales            2,400            5,000            4,000 Closing            1,235            1,025            1,025 Opening             (689)          (1,235)          (1,025) Purchase (Unit)            2,946            4,790            4,000 Purchase (Value) $ 3,24,060 $ 5,26,900 $ 4,40,000 June & July June July Beginning cash balance $ 1,20,000 $ 1,20,000 Collection from sales $ 5,33,120 $ 6,63,460 Total available $ 6,53,120 $ 7,83,460 cash payments for: Purchases $ 4,45,764 $ 4,74,760 Administrative expenses $ 1,62,000 $ 1,62,000 Total cash payments $ 6,07,764 $ 6,36,760 Preliminary cash balance $     45,356 $ 1,46,700 Loan taken/(repaid) $     74,644 $   (26,700) ending cash balance $ 1,20,000 $ 1,20,000 Loan balance June July Loan balance - beginning of month $     49,500 $ 1,24,144 Additional loan (Loan repayment) $     74,644 $   (26,700) Loan balance - end of month $ 1,24,144 $     97,444

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