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	$	45,000	$	75,000	$	55,000	$	50,000
Cost of goods sold		26,000		44,000		32,000		29,000
Gross margin		19,000		31,000		23,000		21,000
Selling and administrative expenses:
Selling expense		8,700		12,700		9,000		7,800
Administrative expense*		5,900		7,700		6,600		6,400
Total selling and administrative expenses		14,600		20,400		15,600		14,200
Net operating income	$	4,400	$	10,600	$	7,400	$	6,800

*Includes $2,250 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 $35,000, and June sales totalled $41,000.
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 $14,200.
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 $20,500.
f.	Land costing $4,750 will be purchased in July.
g.	Dividends of $1,250 will be declared and paid in September.
h.	The cash balance on June 30 is $8,500; 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

			Schedule of cash collection
			July	August	September	Quarter
Cash sales			9000	15000	11000	35000
Sales on account
May			5600			5600
June			22960	6560		29520
July			3600	25200	7200	36000
August				6000	42000	48000
September					4400	4400
Total cash collections			41160	52760	64600	158520
2a)			Merchandise purchase budget
			July	August	September
Budgeted cost of goods sold			26,000	44,000	32,000
Add:ending inventory			33000	24000	21750
total needs			59,000	68,000	53,750
Deduct:Beginning inventory			20,500	33000	24000
Required invnetory purchases			38,500	35,000	29,750
b)			Schedule of Cash disbursements
			July	August	September	Quarter
Accounts payable,June 30			14,200			14,200
July purchases			19250	19250		38500
August purchases				17500	17500	35000
September purchases					14875	14875
Total cash disbursements			33,450	36750	32375	102,575
c)			Cash Budget
			July	August	September	Quarter
Cash balance ,beginning			8,500	9,110	8,970	8,500
Add collection from sales			41160	52760	64600	158520
Total cash available			49,660	61,870	73,570	167,020
less: disbursements
for inventory purchases			33,450	36750	32375	102,575
For selling expense			8,700	12,700	9,000	30,400
for administrative expense			3650	5450	4350	13450
for land			4,750			4,750
for dividends					1,250	1250
total disbursements			50,550	54900	46975	152,425
Excess(Deficiency)			-890	6,970	26,595	14,595
financing:
Borrowings			10,000	2,000	0	12,000
Repayment			0	0	-12000	-12000
interest			0	0	-340	-340
total financing			10,000	2,000	-12340	-340
cash balance,ending			9,110	8,970	14,255	14,255