Question

Aztec Company sells its product for $150 per unit. Its actual and budgeted sales follow.

	Units	Dollars
April (actual)	3,500	$	525,000
May (actual)	2,200		330,000
June (budgeted)	5,000		750,000
July (budgeted)	4,000		749,000
August (budgeted)	3,900		585,000

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, 27% in the second month after the sale, and 3% 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 22% of the next month’s unit sales plus a safety stock of 175 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,944,000 and are paid 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 loan carries an annual 12% interest rate. On May 31, the loan balance is $33,000, and the company’s cash balance is $100,000. Complete this question by entering your answers in the tabs below.

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.

Answer 1

All sales are on credit

cash collection :

In month of sale-26%

in next month -44%

In second following month -27%

Cash collection schedule:

	June	July
Cash collected from sales in April	$141,750[$525,000*27%]	-
Cash collected from sales in May	$145,200[$330,000*44%]	$89,100[$330,000*27%]
Cash collected from sales in June	$195,000[$750,000*26%]	$330,000[$750,000*44%]
Cash collected from sales in July		$194,740[$749,000*26%]
Total	$481,950	$613,840

April sales would be collected

26% in april

44% in May

27% in June

May sales would be collected

26% in may

44% in June

27% in July

June sales would be collected

26% in June

44% In july

27% in august

July sales would be collected

26% in July

44% August

27% in September

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