Aztec Company sells its product for $180 per unit. Its actual and projected sale

Question

Aztec Company sells its product for $180 per unit. Its actual and projected sales follow.

                                      Units           Dollars

April (actual)                 7,000           $1,260,000  

May (actual)                3,200            576,000  

June (budgeted)            6,000           1,080,000  

July (budgeted)              7,500          1,350,000  

August (budgeted)         3,700          666,000  

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, 25% in the second month after the sale, and 5% proves to be uncollectible. The product’s purchase price is $110 per unit. All purchases are payable within 12 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 21% 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 $1,632,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $100,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $100,000, 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 $44,500, and the company’s cash balance is $100,000. (Round final answers to the nearest whole dollar.)

1. Prepare a cash budget for June and July, including any loan activity and interest expense. Compute the loan balance at the end of each month. (Do not round intermediate calculations.)

List all transactions and amounts

Explanation / Answer

1.

2.

3.

4.

5.

Both the months have cash more than minimum so no extra loan required

* All fgrues in Q no 5 are in $.

Cash Collections of Credit Sales June 25%*1260000+46%*576000+24%*1080000= $839160 July 25%*576000+46%*1080000+24%*1350000= $964800

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