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

	May (Actual)	June (Budget)	July (Budget)	August (Budget)
Sales units	2,000	4,500	3,500	4,400
Sales dollars	$ 320,000	$ 720,000	$ 560,000	$ 704,000

All sales are on credit. Collections are as follows: 28% is collected in the month of the sale, and the remaining 72% is collected in the month following the sale. Merchandise purchases cost $110 per unit. For those purchases, 60% is paid in the month of purchase and the other 40% is paid in the month following purchase. The company has a policy to maintain an ending monthly inventory of 21% of the next months unit sales. The May 31 actual inventory level of 945 units is consistent with this policy. Selling and administrative expenses of $110,000 per month are paid in cash. The companys minimum cash balance at month-end is $110,000. Loans are obtained at the end of any month when the preliminary cash balance is below $110,000. Any preliminary cash balance above $110,000 is used to repay loans at month-end. This loan has a 1.0% monthly interest rate. On May 31, the loan balance is $35,000, and the companys cash balance is $110,000. Required: 1. Prepare a schedule of cash receipts from sales for each of the months of June and July. 2. Prepare the merchandise purchases budget for June and July. 3. Prepare a schedule of cash payments for merchandise purchases for June and July. Assume Mays budgeted merchandise purchases is $277,750. 4. 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.

Prepare the merchandise purchases budget for June and July.

AZTEC COMPANY
Merchandise Purchases Budgets
	June	July
Budgeted sales units	4,500	3,500
Calculation of desired ending inventory
Next period budgeted sales units
Ratio of inventory to future sale
Add: Desired ending inventory
Desired ending inventory units	4,500	3,500
Less: Beginning inventory units
Units to purchase	4,500	3,500
Cost per unit	$110	$110
Cost of merchandise purchases	$495,000	$385,000