Aztec Company sells its product for $170 per unit. Its actual and projected sale

Question

Aztec Company sells its product for $170 per unit. Its actual and projected sales follow.

Units

Dollars

  April (actual)

4,000      

$680,000   

  May (actual)

4,000      

680,000   

  June (budgeted)

6,000      

1,020,000   

  July (budgeted)

6,500      

1,105,000   

  August (budgeted)

4,400      

748,000   

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, 29% in the second month after the sale, and 1% proves to be uncollectible. The product’s purchase price is $110 per unit. All purchases are payable within 14 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 23% of the next month’s unit sales plus a safety stock of 65 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,548,000 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 $47,000, and the company’s cash balance is $110,000.

Aztec Company sells its product for $170 per unit. Its actual and projected sales follow.

Explanation / Answer

Amount Collected Sales April May June July August April 680000 190400 285600 197200 May 680000 190400 285600 190400 June 1020000 285600 428400 285600 July 1105000 309400 129948 August 748000 + 209440 190400 476000 768400 928200 624988 Budgeted ending inventory April May June July Next Month Budgeted sales 4000 6000 6500 4400 Ratio of inventory to future sales 23% 23% 23% 23% Budgeted base ending Inventory 920 1380 1495 1012 Saftey Stock 65 65 65 65 Budgeted ending inventory 985 1445 1560 1077 Material Purchase budget May june July Budgeted uint sales for month 4000 6000 6500 Budgeted ending inventory 1445 1560 1077 Required Units Availabe 5445 7560 7577 Budgeted Beginning Inventory 985 1445 1560 Budgeted Purchase 4460 6115 6017 Budgeted Cost per unit 110 110 110 Budgeted cost of merchendise 490600 672650 661870 Cash payment on Product Purchased May June July may 490600 294360 196240 june 672650 403590 269060 july 661870 397122 294360 599830 666182

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