Problem 7-7AA Merchandising: Preparation and analysis of cash budgets with supporting inventory and purchases budgets LO P4 Aztec Company sells its product for $180 per unit. Its actual and budgeted sales follow, Units Dollars April (actual) 4,000 5 720,000 May (actual) 2,000 360,000 June (budgeted 6,000 1,080,000 July (budgeted) 5,800 900,000 August (budgeted) 3,800 684,000 Al sales are on credit Recent experience shows that 20% of credit sales is collected in the month of the sale, 50% in the month after the sale, 28% in the second month after the sale, and 2% 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 soles plus a safety stock of 100 units. The April 30 and May 31 actual Inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,320,000 and are pold evenly throughout the year in cash. The company's minimum cash balance at month-end is $100,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $100,000, the company repays as much of the loan as it can without going below the minimum. This type of foon corries on annual 12% interest rate. On May 31, the loan balance is $25.000, and the company's cash balance is $100,000 Required 1 Required 2 Required 3 Required 4 Required 5 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 Percent Collected in June July April May August Credit sales from: April May June July August Total April May Amount Collected in June July + August $ Credit sales from: April May June July August 720,000 360,000 1,080,000 900,000 684,000 Required 1 Required 2 Required 3 Required 4 Required 5 Prepare a schedule that shows the computation of budgeted ending inventories (in units) for April, May, June, and Ju AZTEC COMPANY Budgeted Ending Inventory For April, May, June and July April May Next month's budgeted sales (units) Ratio of inventory to future sales Budgeted "base" ending inventory June July Required 1 Required 2 Required 3 Required 4 Required 5 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 Required 1 Required 2 Required 3 Required 4 Required 5 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. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round your final answers to the nearest whole dollar value.) AZTEC COMPANY Cash Budget June and July June July Beginning cash balance Total cash available Cash payments for 0 0 Total cash payments Preliminary cash balance Ending cash balance Loan balance June July Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month $ 0
