Question - Aztec Company sells its product for $160 per unit. Its actual and budgeted sales follow.
Units Dollars
April (actual) 3,500 $560,000
May (actual) 2,400 $384,000
June (budgeted) 5,000 $800,000
July (budgeted) 4,000 $799,000
August (budgeted) 4,300 $688,000
All sales are on credit. Recent experience shows that 26% of credit sales is collected in the month of the sale, 44% 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. 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 24% of the next month's unit sales plus a safety stock of 135 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,212,000 and are paid evenly throughout the year in cash. The company's minimum cash balance at month-end is $140,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $140,000, 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 $31,000, and the company's cash balance is $140,000.
Required:
1. First Part - What is the schedule that shows the computation of cash collections of its credit sales (accounts receivable) in each of the months of June and July.
2. Second Part - Part - What is the schedule that shows the computation of budgeted ending inventories (in units) for April, May, June, and July.
3. Third Part - Form 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. Fourth Part - Part - What is a schedule showing the computation of cash payments for product purchases for June and July.
5. Fifth and final part - What is the cash budget for June and July, including any loan activity and interest expense. Compute the loan balance at the end of each month.