Problem 20-3A Merchandising: Preparation and analysis of cash...

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___________________________________________________________________________________________

________________________________________________________________________________________________