Question
Aztec Company sells its product for $170 per unit. Its actual and budgeted sales follow. Units Dollars April (actual) 5,500 $ 935,000 May (actual) 4,000
Aztec Company sells its product for $170 per unit. Its actual and budgeted sales follow. Units Dollars April (actual) 5,500 $ 935,000 May (actual) 4,000 680,000 June (budgeted) 5,500 935,000 July (budgeted) 7,000 1,190,000 August (budgeted) 3,600 612,000 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 products 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 months unit sales plus a safety stock of 180 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,764,000 and are paid evenly throughout the year in cash. The companys minimum cash balance at month-end is $120,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $120,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 11% interest rate. On May 31, the loan balance is $46,000, and the companys cash balance is $120,000.
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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