Janus Products, Inc., is a merchandising company that sells binders, paper, and

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:

Credit sales are collected over a three-month period with 15% collected in the month of sale, 60% in the month following sale, and 25% in the second month following sale. May sales totaled $46,000, and June sales totaled $34,000.

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% is paid in the following month. Accounts payable for inventory purchases at June 30 total $12,600.

The company maintains its ending inventory levels at 90% of the cost of the merchandise to be sold in the following month. The merchandise inventory at June 30 is $29,700.

The cash balance on June 30 is $9,000; 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.

Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total.

Prepare the following for merchandise inventory:

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

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

Prepare a cash budget for July, August, and September and for the quarter in total. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

References

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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:

Explanation / Answer

Answer 1 Schedule of expected cash collection Jul Aug Sep Quarter Cash Sales 9400 18400 14800 42600 Sales on account May 9200 0 0 9200 June 16320 6800 0 23120 July 5640 22560 9400 37600 Aug 0 11040 44160 55200 Sep 0 0 8880 8880 Total cash Collection 40560 58800 77240 176600 Answer 2 (a) Merchandise Purchase Budget Jul Aug Sep Budgeted cost of goods sold 33000 51000 39000 Closing Inventory 45900 35100 32400 Total Needs 78900 86100 71400 Less : Opening Inventory 29700 45900 35100 Required Inventory Purchased 49200 40200 36300 Answer 2 (b) Schedule of expected cash disbursement for merchandise purchase Jul Aug Sep Quarter Beginning account Payable 12600 0 0 12600 July purchase 24600 24600 0 49200 August Purchase 0 20100 20100 40200 September Purchase 0 0 18150 18150 Total cash disbursement 37200 44700 38250 120150 Answer 3 Janus Product Cash Budget For the quarter end September 30 Jul Aug Sep Quarter Beginning Cash Balance 9000 9760 9360 9000 Add: collection from customer 40560 58800 77240 176600 Total cash available 49560 68560 86600 185600 Less Cash disbursement Purchase for Inventory 37200 44700 38250 120150 Selling Expenses 6800 10300 9100 26200 Administrative Expenses 3800 7200 7200 18200 Land Purchase 5000 0 0 5000 Dividend Paid 0 0 1000 1000 Total Cash Disbursement 52800 62200 55550 170550 Excess (def) of cash available over cash disbursement -3240 6360 31050 15050 Financing Borrowing 13000 3000 0 16000 Repayment 0 0 -16000 -16000 Interest 0 0 -450 -450 Total Financing 13000 3000 -16450 -450 Ending cash balance 9760 9360 14600 14600

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