Problem 20-3A Merchandising: Preparation and analysis of cash budgets with supporting inventory and purchases budgets LO C2, P2.

Aztec Company sells its product for $170 per unit. Its actual and projected sales follow.

Units Dollars

April (actual) 9,500 $1,615,000

May (actual) 2,400 408,000

June (budgeted) 7,000 1,190,000

July (budgeted) 8,000 1,360,000

August (budgeted) 4,100 697,000

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. All purchases are payable within 11 days. Thus, 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 18% of the next month's unit sales plus a safety stock of 195 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,716,000 and are paid evenly throughout the year in cash. The company's 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 12% interest rate. On May 31, the loan balance is $30,500 and the company's cash balance is $120,000. (Round final answers to the nearest whole dollar.)

1. Problem 20-3A Part 1

1. Prepare a table that shows the computation of cash collections of its credit sales (accounts receivable) in each of the months of June and July.

Percent Collected in

April May June July August

Credit sales from:

April _____________________________________________________________________

May ______________________________________________________________________

June ______________________________________________________________________

July ______________________________________________________________________

August _______________________________________________________________________

Amount Collected in

Total April May June July August

Credit sales from:

April $ 1,615,000 _____________________________________________________________________

May 408,000 ____________________________________________________________________

June 1,190,000 ____________________________________________________________________

July 1,360,000 ____________________________________________________________________

August 697,000____________________________________________________________________

___________________________________________________________________

2. Problem 20-3A Part 2

2. Prepare a table that show the computation of budgeted ending inventories (in units) for April, May, June and July.

AZTEC COMPANY

Budgeted Ending Inventory

For April, May, June and July

April May June July

Nextmonth's budgeted sales (units)_____________________________________________________

Ratio of inventory to future sales ______________________________________________________

Budgeted "base" ending inventory______________________________________________________________

__________________________________________________________

___________________________________________________________

3. Problem 20-3A Part 3

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.

AZTEC COMPANY

Merchandise Purchases Budgets

For May, June, and July

May June July

_____________________________________________________________________________________________________________________

_________________________________________________________________________________________________________________________

Required units of available merchandise____________________________________________________________________________

________________________________________________________________________________________________________________________

Budgeted purchases (units)__________________________________________________________________________________________

__________________________________________________________________________________________________________________________

Budgeted cost of merchandise purchases___________________________________________________________________________

4. Problem 20-3A Part 4

4. Prepare a table showing the computation of cash payments on product purchases for June and July.

Cash payment on product purchases (for June and July)

-----------------------Percent Paid in----------------------

May June July

From purchases in:__________________________________________________________________________

May___________________________________________________________________________________________

June___________________________________________________________________________________________

July_____________________________________________________________________________________________

---------------------Amount Paid in-------------------------

Total May June July

From purchases in:

May____________________________________________________________________________________________

June___________________________________________________________________________________________

July___________________________________________________________________________________________

________________________________________________________________________________________________