Problem 22-7AA Merchandising: Preparation and analysis of cash budgets with supporting inventory and purchases budgets LO P4 Aztec Company sells its product for $150 per unit. Its actual and budgeted sales follow. Dollars $ 450, 000 360, e00 Units April (actual) May (actual) June (budgeted) July (budgeted) August (budgeted) 3,000 2,400 5,000 750, 000 4,000 749, e00 3,900 585,000 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, 28% in the second month after the sale, and 2% 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 25% of the next month's unit sales plus a safety stock of 110 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,380,000 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 $38,500, and the company's cash balance is $110,000. 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. 2. Prepare a schedule that shows the computation of budgeted ending inventories (in units) for April, May, June, and July. 3. Prepare the merchandise purchases budget for May, June, and July. Report calculations in units and then show the dollar amount of purchases for each month.
Problem 22-7AA Merchandising: Preparation and analysis of cash budgets with supporting inventory and purchases budgets LO P4 Aztec Company sells its product for $150 per unit. Its actual and budgeted sales follow. Dollars $ 450, 000 360, e00 Units April (actual) May (actual) June (budgeted) July (budgeted) August (budgeted) 3,000 2,400 5,000 750, 000 4,000 749, e00 3,900 585,000 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, 28% in the second month after the sale, and 2% 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 25% of the next month's unit sales plus a safety stock of 110 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,380,000 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 $38,500, and the company's cash balance is $110,000. 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. 2. Prepare a schedule that shows the computation of budgeted ending inventories (in units) for April, May, June, and July. 3. Prepare the merchandise purchases budget for May, June, and July. Report calculations in units and then show the dollar amount of purchases for each month.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 22-7AA Merchandising: Preparation and analysis of cash budgets with supporting inventory
and purchases budgets LO P4
Aztec Company sells its product for $150 per unit. Its actual and budgeted sales follow.
Units
Dollars
3, еее
2,400
450, e00
360, 000
April (actual)
May (actual)
June (budgeted)
July (budgeted)
August (budgeted)
$
5,e00
750, еее
4, еее
3,900
749,e00
585,000
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, 28% in the second month after the sale, and 2% 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 25% of the next month's unit sales plus a safety stock of 110 units. The April 30 and May 31 actual
inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,380,000 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 $38,500, and
the company's cash balance is $110,000.
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.
2. Prepare a schedule that shows the computation of budgeted ending inventories (in units) for April, May, June, and July.
3. Prepare the merchandise purchases budget for May, June, and July. Report calculations in units and then show the dollar amount of
purchases for each month.
4. Prepare a schedule showing the computation of cash payments for product purchases for June and July.
5. 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.
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