Budgeting

Aztec Company sells its product for $170 per unit. Its actual and projected sales follow.

Units Dollars
April (actual) 9,000       $1,530,000
May (actual) 3,200       544,000
June (budgeted) 6,000       1,020,000
July (budgeted) 7,000       1,190,000
August (budgeted) 4,400       748,000

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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, 28% in the second month after the sale, and 2% proves to be uncollectible. The product’s purchase price is $110 per unit. All purchases are payable within 14 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 20% of the next month’s unit sales plus a safety stock of 115 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,536,000 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 11% interest rate. On May 31, the loan balance is $48,500, and the company’s cash balance is $100,000. (Round amounts to the nearest dollar.)

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
April May June July August
Credit sales from:
April
May
June
July
August


2. Prepare a table that shows 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 August
Next month’s budgeted sales
Ratio of inventory to future sales
Budgeted “base” ending inventory
Safety stock
Budgeted Ending Inventory

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
April May June July August
Budgeted Ending Inventory (units)
Budgeted unit sales for month
Required units of available merchandise
Budgeted beginning inventory (units)
Budgeted purchases (units)
Budgeted cost per unit
Budgeted cost of merchandise purchases

“4. Prepare a table showing the computation of cash payments on product purchases for June and July.

Cash payments on product purchases (for June and July)
Percent Paid in
May June July August
From purchases in:
May
June
July
August

Amount Paid in
Total May June July August
From purchases in:
May
June
July

“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. (Do not round intermediate calculations.)

AZTEC COMPANY
Cash Budget
June and July
June July
Beginning cash balance
cash receipts from customers
Total cash available
Cash disbursements:
Payments on purchases
Selling and administrative expenses
Interest expense
other option could be here *** see right   <================  other options
Total cash disbursements    1 additional loan (repayment)
Preliminary cash balance    2 cash receipts from customers
Additional loan (repayment)    3 interest expense
Ending cash balance    4 payments on purchases
5 selling and administrative expenses
Loan balance
June July
Loan balance – Beginning of month
Additional loan repayment
Loan balance – End of month


Black Diamond Company produces snow skis. Each ski requires 2 pounds of carbon fiber. The company’s management predicts that 5,400 skis and 6,400 pounds of carbon fiber will be in inventory on June 30 of the current year and that 154,000 skis will be sold during the next (third) quarter. A set of two skis sells for $340. Management wants to end the third quarter with 3,900 skis and 4,400 pounds of carbon fiber in inventory. Carbon fiber can be purchased for $19 per pound. Each ski requires 0.5 hours of direct labor at $24 per hour. Variable overhead is applied at the rate of $12 per direct labor hour. The company budgets fixed overhead of $1,786,000 for the quarter.”

“1. Prepare the third-quarter production budget for skis.
Prepare the third-quarter production budget for skis.””
2. Prepare the third-quarter direct materials (carbon fiber) budget; include the dollar cost of purchases.
Prepare the third-quarter production budget for skis.”

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