Question

Janus Products, Inc. is a merchandising company that sells binders, paper, and other school supplies. The company is planning its cash needs for the third quarter. In the past, Janus Products has had to borrow money during the third quarter to support peak sales of back-to-school materials, which occur during August. The following information has been assembled to assist in preparing a cash budget for the quarter: a. Budgeted monthly absorption costing income statements for July to October are as follows: Sales Cost of goods sold July $ 47,000 26,800 August $77,000 44,800 September $57,000 32,800 October $ 52,000 29,800 Gross margin 20,200 32,200 24,200 22,200 Selling and administrative expenses: Selling expense Administrative expense* 9.300 6,000 13.100 7,900 9.200 6,800 8,000 6.600 Total selling and administrative expenses 15,300 $ 4,900 21,000 $ 11,200 16,000 $ 8,200 14,600 $ 7,600 Net operating income *Includes $2,350 depreciation each month. b. Sales are 20% for cash and 80% on credit. C. Credit sales are collected over a three-month period, with 10% collected in the month of sale, 70% in the month following sale, and 20% in the second month following sale. May sales totalled $37,000, and June sales totalled $43,000. d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month's inventory purchases are paid for in the month of purchase. The remaining 50% are paid in the following month. Accounts payable for inventory purchases at June 30 total $15,200. e. The company maintains its ending inventory levels at 75% of the cost of the merchandise to be sold in the following month. The merchandise inventory at June 30 is $21,500. f. Land costing $4,850 will be purchased in July g. Dividends of $1,350 will be declared and paid in September h. The cash balance on June 30 is $8,700, the company must maintain a cash balance of at least this amount at the end of each month. The company has an agreement with a local bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $40,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. i.

Answer 1

1. Schedule of expected cash collections

	July	August	September	Quarter
Cash sales	$9,400	$15,400	$11,400	$36,200
Credit sales:
May	5,920			5,920
June	24,080	6,880		30,960
July	3,760	26,320	7,520	37,600
August		6,160	43,120	49,280
September			4,560	4,560
Total cash collections	$43,160	$54,760	$66,600	$164,520

Explanation:

	July	August	September
Cash sales (20%)	$47,000×20%	$77,000×20%	$57,000×20%
Credit sales:
May	37,000×80%×20%
June	43,000×80%×70%	43,000×80%×20%
July	47,000×80%×10%	47,000×80%×70%	47,000×80%×20%
		77,000×80%×10%	77,000×80%×70%
			57,000×80%×10%

2 a. Merchandise purchase budget

	July	August	September
Cost of goods sold	$26,800	$44,800	$32,800
Add: Desired Ending inventory	33,600	24,600	22,350
Total needs	60,400	69,400	55,150
Less: beginning inventory	(21,500)	(33,600)	(24,600)
Merchandise purchase	$38,900	$35,800	$30,550

* Beginning inventory is next month 75% of sale

*Beginning inventory is the previous month Ending inventory

2 b. Schedule of expected cash disbursements

	July	August	September	Quarter
Accounts payable	$15,200
July purchase	19,450	19,450
August purchase		17,900	17,900
September purchase			15,275
Total cash disbursements	$34,650	$37,350	$33,175	$105,175

3. Cash Budget

	July	August	September	Quarter
Beginning cash	$8,700	$9,410	$9,170	$8,700
Total cash collections	43,160	54,760	66,600	164,520
Total cash available	51,860	64,170	75,770	173,220
Less: Disbursements for merchandise purchase	34,650	37,350	33,175	105,175
Selling expenses	9,300	13,100	9,200	31,600
Administrative expense	3,650	5,550	4,450	13,650
Purchase of land	4,850	-	-	4,850
Dividends paid	-	-	1,350	1,350
Total disbursements	52,450	56,000	48,175	156,625
Excess (Deficiency) of cash	(590)	8,170	27,595	16,595
Finance:
Borrowing	10,000	1,000	-	11,000
Interest			(320)	(320)
Repayment			(11,000)	(11,000)
Total Finance	10,000	1,000	(11,320)	(320)
Ending balance	$9,410	$9,170	$16,275	$16,275

*Interest paid =$10,000×3% +$1,000×2% =$320

* Cash paid for administrative expense= Administrative expense- Depreciation expense

____×____

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Answer 2

How did you get beginning cash balance?

Answer 3

Where did you get the 1,000 borrowing at the month of august?