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: September $63,000 35,200 October $58,000 32,200 July $53,000 29,200 August $83,000 47,200 Sales Cost of goods sold Gross margin 23,800 25,800 35,800 27,800 Selling and administrative expenses: Selling expense Administrative expense 14,300 8,500 11,100 6,300 9,800 7,400 8,600 7,200 Total selling and administrative expenses 17,200 15,800 17,400 22,800 $ 6,400 $13,000 $10,600 $10,000 Net operating income Includes $2,650 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 $43,000, and June sales totalled $49,000. 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 $18,200 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 $24,500. f. Land costing $5,150 will be purchased in July g. Dividends of $1,650 will be declared and paid in September. h. The cash balance on June 30 is $9,300; 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

			Schedule of cash collection
			July	August	September	Quarter
Cash sales			10600	16600	12600	39800
Sales on account
May			6880			6880
June			27440	7840		35280
July			4240	29680	8480	42400
August				6640	46480	53120
September					5040	5040
Total cash collections			49160	60760	72600	182520
2a)			Merchandise purchase budget
			July	August	September
Budgeted cost of goods sold			29,200	47,200	35,200
Add:ending inventory			35400	26400	24150
total needs			64,600	73,600	59,350
Deduct:Beginning inventory			24,500	35400	26400
Required invnetory purchases			40,100	38,200	32,950
b)			Schedule of Cash disbursements
			July	August	September	Quarter
Accounts payable,June 30			18,200			18,200
July purchases			20050	20050		40100
August purchases				19100	19100	38200
September purchases					16475	16475
Total cash disbursements			38,250	39150	35575	112,975
c)			Cash Budget
			July	August	September	Quarter
Cash balance ,beginning			9,300	9,310	10,770	9,300
Add collection from sales			49160	60760	72600	182520
Total cash available			58,460	70,070	83,370	191,820
less: disbursements
for inventory purchases			38,250	39150	35575	112,975
For selling expense			11,100	14,300	9,800	35,200
for administrative expense			3650	5850	4750	14250
for land			5,150			5,150
for dividends					1,650	1650
total disbursements			58,150	59300	51775	169,225
Excess(Deficiency)			310	10,770	31,595	22,595
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			9,310	10,770	22,325	22,325

Answer 2

Where do you get the interest