Aztec Company sells its product for $160 per unit

Subject:AccountingPrice: Bought3

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Aztec Company sells its product for $160 per unit. Its actual and budgeted sales follow.

 UnitsDollarsApril (actual)4,000$640,000May (actual)2,200 352,000June (budgeted)5,500 880,000July (budgeted)4,500 879,000August (budgeted)4,000 640,000

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, 26% in the second month after the sale, and 4% 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 20% of the next month's unit sales plus a safety stock of 165 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,608,000 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 $36,000, and the company's cash balance is $130,000.

 Required:

1. How do you 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. How do you prepare a schedule that shows the computation of budgeted ending inventories (in units) for April, May, June, and July.

3. How do you prepare a 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. How do you prepare a schedule showing the computation of cash payments for product purchases for June and July.

5. How do you 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.