Credit sales is collected in the month of the sale

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Reference no: EM13675393

Aztec Company sells its product for $190 per unit. Its actual and projected sales follow.

Units Dollars
April (actual) 9,500 $1,805,000
May (actual) 3,800 722,000
June (budgeted) 6,000 1,140,000
July (budgeted) 7,000 1,330,000
August (budgeted) 4,300 817,000

All 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, 25% in the second month after the sale, and 5% proves to be uncollectible. The product's purchase price is $110 per unit. All purchases are payable within 12 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 24% of the next month's unit sales plus a safety stock of 155 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,620,000 and are paid evenly throughout the year in cash. The company's minimum cash balance at month-end is $110,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $110,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 10% interest rate. On May 31, the loan balance is $30,500, and the company's cash balance is $110,000. (Round final answers to the nearest whole dollar.)

Reference no: EM13675393

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