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.

Answer 1

1.

Schedule of Expected Cash Collections
	July	August	September	Quarter
Cash Sales (20%)	$          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

Working

	July	August	September
Cash Sales (20%)	=47000*20%	=77000*20%	=57000*20%
Credit Sales
May	=37000*80%*20%
June	=43000*80%*70%	=43000*80%*20%
July	=47000*80%*10%	=47000*80%*70%	=47000*80%*20%
August		=77000*80%*10%	=77000*80%*70%
September			=57000*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

Ending Inventory is 75% of next month sales
Beginning Inventory is ending inventory of previous month

2b.

	July	August	September	Quarter
Accounts Payable, June 30	$        15,200
July Purchases	$        19,450	$     19,450
August Purchases		$     17,900	$         17,900
September Purchases			$         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
Deduct : Disbursements
For Merchandise purchase	$        34,650	$     37,350	$         33,175	$      105,175
Selling Expense	$          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
Dividend 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
Financing
Borrowing	$        10,000	$       1,000		$        11,000
Interest			$             -320	$             -320
Repayment			$       -11,000	$       -11,000
Total Financing	$        10,000	$       1,000	$       -11,320	$             -320
Ending Balance	$          9,410	$       9,170	$         16,275	$        16,275

Cash Paid for Administrative expense = Administrative expense - Depreciation expense
Interest paid = $10000 x 3% + $1000 x 2% =$320