Reference no: EM132715315

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) 2,600 $390,000

June (budgeted) 4,500 $675,000

July (budgeted) 3,500 $674,000

August (budgeted) 3,900 $585,000

All sales are on credit. Recent experience shows that 28% of credit sales is collected in the month of the sale, 42% in the month after the sale, 24% in the second month after the sale, and 6% 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 19% of the next month's unit sales plus a safety stock of 165 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,860,000 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 $41,000, and the company's cash balance is $110,000.

Required: 1. What is the computation of cash collections of its credit sales (accounts receivable) in each of the months of June and July.