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 $50,000 28,000 August $80,000 46,000 September $60,000 34,000 October $55,000 31,000 Gross margin 22.000 34.000 26.000 24,000 Selling and administrative expenses: Selling expense Administrative expense* 10,200 6,150 13,700 8,200 9,500 ,100 8,300 6,900 7 Total selling and administrative expenses 16,350 $ 5,650 21,900 $ 12,100 16,600 $ 9,400 15,200 $ 8,800 Net operating income *Includes $2,500 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 $40,000, and June sales totalled $46,000. 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 $16,700. 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 $23,000. f. Land costing $5,000 will be purchased in July. g. Dividends of $1,500 will be declared and paid in September. h. The cash balance on June 30 is $9,000; 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.

Answer 1

			Schedule of cash collection
			July	August	September	Quarter
Cash sales			10000	16000	12000	38000
Sales on account
May			6400			6400
June			25760	7360		33120
July			4000	28000	8000	40000
August				6400	44800	51200
September					4800	4800
Total cash collections			46160	57760	69600	173520
2a)			Merchandise purchase budget
			July	August	September
Budgeted cost of goods sold			28,000	46,000	34,000
Add:ending inventory			34500	25500	23250
total needs			62,500	71,500	57,250
Deduct:Beginning inventory			23,000	34500	25500
Required invnetory purchases			39,500	37,000	31,750
b)			Schedule of Cash disbursements
			July	August	September	Quarter
Accounts payable,June 30			16,700			16,700
July purchases			19750	19750		39500
August purchases				18500	18500	37000
September purchases					15875	15875
Total cash disbursements			36,450	38250	34375	109,075
c)			Cash Budget
			July	August	September	Quarter
Cash balance ,beginning			9,000	9,860	9,970	9,000
Add collection from sales			46160	57760	69600	173520
Total cash available			55,160	67,620	79,570	182,520
less: disbursements
for inventory purchases			36,450	38250	34375	109,075
For selling expense			10,200	13,700	9,500	33,400
for administrative expense			3650	5700	4600	13950
for land			5,000			5,000
for dividends					1,500	1500
total disbursements			55,300	57650	49975	162,925
Excess(Deficiency)			-140	9,970	29,595	19,595
financing:
Borrowings			10,000	0	0	10,000
Repayment			0	0	-10000	-10000
interest			0	0	-300	-300
total financing			10,000	0	-10300	-300
cash balance,ending			9,860	9,970	19,295	19,295