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	$	46,000	$	76,000	$	56,000	$	51,000
Cost of goods sold		26,400		44,400		32,400		29,400
Gross margin		19,600		31,600		23,600		21,600
Selling and administrative expenses:
Selling expense		9,000		12,900		9,100		7,900
Administrative expense*		5,950		7,800		6,700		6,500
Total selling and administrative expenses		14,950		20,700		15,800		14,400
Net operating income	$	4,650	$	10,900	$	7,800	$	7,200

*Includes $2,300 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 $36,000, and June sales totalled $42,000.
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 $14,700.
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 $21,000.
f.	Land costing $4,800 will be purchased in July.
g.	Dividends of $1,300 will be declared and paid in September.
h.	The cash balance on June 30 is $8,600; 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.

      

2.	Prepare the following for merchandise inventory:

a.	A merchandise purchases budget for July, August, and September.

         

b.	A schedule of expected cash disbursements for merchandise purchases for July, August, and September and for the quarter in total.

         

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.)

      

Answer 1

Required 1 :
Jason Products Inc.
Schedule of expected Cash collections
For the Quarter Ended September 30
	July	August	September	Total
Cash Sales (20%)	$9,200 {46,000*20%}	$15,200 {76,000*20%}	$11,200 {56,000*20%}	$ 35,600
Sales on Account :
May	$5,760 {36,000*80%*20%}			$ 5,760
June	$23,520 {42,000*80%*70%}	$6,720 {42,000*80%*20%}		$ 30,240
July	$3,680 {46,000*80%*10%}	$25,760 {46,000*80%*70%}	$7,360 {46,000*80%*20%}	$ 36,800
August		$6,080 {76,000*80%*10%}	$42,560 {76,000*80%*70%}	$ 48,640
Seotember			$4,480 {56,000*80%*10%}	$ 4,480
Total Cash Collection	$ 42,160	$ 53,760	$ 65,600	$ 161,520
Required 2 :
Jason Products Inc.
Merchandise Purchase Budget
For the Quarter Ended September 30
	July	August	September	Total
Budgeted Cost of goods sold	$ 26,400	$ 44,400	$ 32,400	$ 103,200
Add: Desired Inventory (75% of Next month COGS)	$33,300   {$44,400*75%}	$24,300   {$32,400*75%}	$22,050   {$29,400*75%}	$ 79,650
Total Needs	$ 59,700	$ 68,700	$ 54,450	$ 182,850
Less: Beginning Inventory	($ 21,000) (Given)	($33,300)   {$44,400*75%}	($24,300)   {$32,400*75%}	($78,600)
Required Inventory Purchases	$ 38,700	$ 35,400	$ 30,150	$ 104,250

Required 3 :
Jason Products Inc.
Expected Cash Disbursements for Merchandise Purchase
For the Quarter Ended September 30
	July	August	September	Total
Accounts Payable , June 30	$ 14,700			$ 14,700
July Purchase	$ 19,350 {$38,700*50%}	$ 19,350 {$38,700*50%}		$ 38,700
August Purchases		$17,700 {$35,400*50%}	$17,700 {$35,400*50%}	$ 35,400
September Purchases			$15,075 {$30,150*50%}	$ 15,075
Total Cash Disbursements	$ 34,050	$ 37,050	$ 32,775	$ 103,875

Required 4 :
Jason Products Inc.
Cash Budget
For the Quarter Ended September 30
	July	August	September	Total
Beginning Cash Balance	$ 8,600	$ 9,260	$ 9,570
Add: Total Cash Collection (Required 1)	$ 42,160	$ 53,760	$ 65,600	$ 161,520
Total Cash available (a)	$ 50,760	$ 63,020	$ 75,170
Less: Cash Disbursements
Inventory Purchases	$ 34,050	$ 37,050	$ 32,775	$ 103,875
Selling Expenses	$ 9,000	$ 12,900	$ 9,100	$ 31,000
Administrative Expenses	$ 3,650    {5,950-2,300}	$ 5,500    {7,800-2,300}	$ 4,400 {6700-2,300}	$ 13,550
Land	$ 4,800 (Given )			$ 4,800
Dividends			$ 1,300	$ 1,300
Total Cash Disbursements (b)	$ 51,500	$ 55,450	$ 47,575	$ 154,525
Cash Surplus / (Deficit) { c= a-b)}	($740) {50,760-51,500}	$ 7,570       {63,020-55,450}	$ 27,595 {75,170-47,575}	$ 34,425
Financing :
Borrowing	$ 10,000	$ 2,000		$ 12,000
Repayment			($ 12,000)	($12,000)
Interest			($340)	($340)
Net Cash from Financing	$ 10,000	$ 2,000	($12,340)	($340)
Budgeted Ending Cash Balances	$ 9,260	$ 9,570	$ 15,255	$ 15,255

Interest = ($10,000*1%*3 Months)+ ($2,000*1%*2 Months)

Interest = $300 + $ 40

Interest = $ 340