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 $ 41,000 $ 71,000 $ 51,000 $ 46,000 Cost of goods sold 24,400 42,400 30,400 27,400 Gross margin 16,600 28,600 20,600 18,600 Selling and administrative expenses: Selling expense 7,500 11,900 8,600 7,400 Administrative expense* 5,700 7,300 6,200 6,000 Total selling and administrative expenses 13,200 19,200 14,800 13,400 Net operating income $ 3,400 $ 9,400 $ 5,800 $ 5,200 *Includes $2,050 depreciation each month. b. Sales are 20% for cash and 80% on credit. c. Credit sales arecollected 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 $31,000, and June sales totalled $37,000. 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 $12,200. 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 $18,500. f. Land costing $4,550 will be purchased in July. g. Dividends of $1,050 will be declared and paid in September. h. The cash balance on June 30 is $8,100; 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			8200	14200	10200	32600
Sales on account
May			4960			4960
June			20720	5920		26640
July			3280	22960	6560	32800
August				5680	39760	45440
September					4080	4080
Total cash collections			37160	48760	60600	146520
2a)			Merchandise purchase budget
			July	August	September
Budgeted cost of goods sold			24,400	42,400	30,400
Add:ending inventory			31800	22800	20550
total needs			56,200	65,200	50,950
Deduct:Beginning inventory			18,500	31800	22800
Required invnetory purchases			37,700	33,400	28,150
b)			Schedule of Cash disbursements
			July	August	September	Quarter
Accounts payable,June 30			12,200			12,200
July purchases			18850	18850		37700
August purchases				16700	16700	33400
September purchases					14075	14075
Total cash disbursements			31,050	35550	30775	97,375
c)			Cash Budget
			July	August	September	Quarter
Cash balance ,beginning			8,100	8,510	8,570	8,100
Add collection from sales			37160	48760	60600	146520
Total cash available			45,260	57,270	69,170	154,620
less: disbursements
for inventory purchases			31,050	35550	30775	97,375
For selling expense			7,500	11,900	8,600	28,000
for administrative expense			3650	5250	4150	13050
for land			4,550			4,550
for dividends					1,050	1050
total disbursements			46,750	52700	44575	144,025
Excess(Deficiency)			-1,490	4,570	24,595	10,595
financing:
Borrowings			10,000	4,000	0	14,000
Repayment			0	0	-14000	-14000
interest			0	0	-380	-380
total financing			10,000	4,000	-14380	-380
cash balance,ending			8,510	8,570	10,215	10,215