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:

	July		August		September		October
Sales	$	58,000	$	88,000	$	68,000	$	63,000
Cost of goods sold		31,200		49,200		37,200		34,200
Gross margin		26,800		38,800		30,800		28,800
Selling and administrative expenses:
Selling expense		12,600		15,300		10,300		9,100
Administrative expense*		6,550		9,000		7,900		7,700
Total selling and administrative expenses		19,150		24,300		18,200		16,800
Net operating income	$	7,650	$	14,500	$	12,600	$	12,000

*Includes $2,900 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 $48,000, and June sales totalled $54,000.
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 $20,700.
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 $27,000.
f.	Land costing $5,400 will be purchased in July.
g.	Dividends of $1,900 will be declared and paid in September.
h.	The cash balance on June 30 is $9,800; the company must maintain a cash balance of at least this amount at the end of each month.
i.	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.

Required:
1.	Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total.
	JANUS PRODUCTS INC. schaduleof expected cash collections july august sept quarter cash sale credit sales may june july august September total cash collections

      

2.	Prepare the following for merchandise inventory:

a.	A merchandise purchases budget for July, August, and September.
	JANUS PRODUCTS INC Merchandise Purchases Budgets july august september total needs

b.	A schedule of expected cash disbursements for merchandise purchases for July, August, and September and for the quarter in total.
	JANUS PRODUCTS INC. SCHEDULE FOR EXPECTED CASH DISBURSEMENTS JULY AUGUST SEPTEMBER QUARTER accounts payable June 30 july purchases August purchases September perchases Total cash disbursement

         

3.	Prepare a cash budget for July, August, and September and for the quarter in total. (Roundup "Borrowing" and "Repayments" answers to the nearest whole dollar amount. Any "Repayments" and "Interest" should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required.)
	JULY AUGUST SEPTEMBER QUARTEr total cash available deduct disbursements total disbursements excess(deficiency) of cash available Financing: Total financing

      

Answer 1

			Schedule of cash collection
			July	August	September	Quarter
Cash sales			11600	17600	13600	42800
Sales on account
May			7680			7680
June			30240	8640		38880
July			4640	32480	9280	46400
August				7040	49280	56320
September					5440	5440
Total cash collections			54160	65760	77600	197520
2a)			Merchandise purchase budget
			July	August	September
Budgeted cost of goods sold			31,200	49,200	37,200
Add:ending inventory			36900	27900	25650
total needs			68,100	77,100	62,850
Deduct:Beginning inventory			27,000	36900	27900
Required invnetory purchases			41,100	40,200	34,950
b)			Schedule of Cash disbursements
			July	August	September	Quarter
Accounts payable,June 30			20,700			20,700
July purchases			20550	20550		41100
August purchases				20100	20100	40200
September purchases					17475	17475
Total cash disbursements			41,250	40650	37575	119,475
c)			Cash Budget
			July	August	September	Quarter
Cash balance ,beginning			9,800	10,060	13,770	9,800
Add collection from sales			54160	65760	77600	197520
Total cash available			63,960	75,820	91,370	207,320
less: disbursements
for inventory purchases			41,250	40650	37575	119,475
For selling expense			12,600	15,300	10,300	38,200
for administrative expense			3650	6100	5000	14750
for land			5,400			5,400
for dividends					1,900	1900
total disbursements			62,900	62050	54775	179,725
Excess(Deficiency)			1,060	13,770	36,595	27,595
financing:
Borrowings			9,000	0	0	9,000
Repayment			0	0	-9000	-9000
interest			0	0	-270	-270
total financing			9,000	0	-9270	-270
cash balance,ending			10,060	13,770	27,325	27,325
			9000*1%*3