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) 6,000 $960,000 May (actual) 2,600 416,000 June (budgeted) 7,500 1,200,000 July (budgeted) 6,000 960,000 August (budgeted) 4,200 672,000 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. 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 70 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,524,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $130,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $130,000, 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 $32,000, and the company’s cash balance is $130,000. (Round final answers to the nearest whole dollar.)

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.

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.

Explanation / Answer

Units Dollars April (actual) 6,000 $960,000 May (actual) 2,600 416,000 June (budgeted) 7,500 1,200,000 July (budgeted) 6,000 960,000 August (budgeted) 4,200 672,000 Month of sale 1st Month 2nd Month Uncollectible Collection ratio 22% 48% 27% 3% June July Collection in June $         722,880 April -27% = 259,200 May - 48% = 199,680 June - 22% = 264,000 Collection in July $      899,520 May - 27% = 112,320 June - 48% = 576,000 July - 22% = 211,200

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