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

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 cas a. Budgeted monthly absorption costing income statements for July to October are as follows July 26,000 19,000 AugustSeptember October 44,000 31,000 Sales $45,000$75,000 $55,000 $50,000 29,000 Cost of goods sold Gross margin Selling and administrative expenses 32,000 23,000 21,000 Selling expense Administrative expense* 12,700 7,700 9,000 6,600 7,800 8,700 5,900 6,400 14,200 $ 4,400 10,600 7,400 6,800 Total selling and administrative expenses 14,600 20,400 15,600 Net operating income "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 totaled $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 unt at the end of each month. amo 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.

Explanation / Answer

JANUS Products INC Schedule of Expected Collection Months July August September Quarter Sales 45000 75000 55000 Cash Sales 9000 15000 11000 35000 Credit Sales In the Month(10%) 3600 6000 4400 14000 In the Following Month(70%) 22960 25200 42000 90160 In the Following Second Month(20%) 5600 6560 7200 19360 Total Collections 41160 52760 64600 158520 JANUS Products INC Merchandise Purchase Budget Months July August September Cost of Goods Sold 26000 44000 32000 Add: Closing Inventory 33000 24000 21750 Total Need 59000 68000 53750 Less: Opening Inventory 20500 33000 24000 Net to be Purchased 38500 35000 29750 JANUS Products INC Schedule of Expected Payments Months July August September Quarter In the Month(50%) 19250 17500 14875 51625 In the Following Month(50%) 14200 19250 17500 50950 Total 33450 36750 32375 102575 JANUS Products INC Cash Budget Months July August September Quarter Cash Collections 41160 52760 64600 158520 (Taken from Above) Cash Payments: For Purchases 33450 36750 32375 102575 (Taken from Above) Selling Exp 8700 12700 9000 30400 From Income statement Admin Exp 3650 5450 4350 13450 From Income statement exc Dep Land 4750 - - 4750 From Notes Dividend - - 1250 1250 From Notes Total Payments 50550 54900 46975 152425 Increase/Decrease in Cash -9390 -2140 17625 6095 Opening Cash Balance 8500 9110 8970 8500 Closing Cash before Loans -890 6970 26595 14595 Loan Taken 10000 2000 0 12000 Loan Paid 0 0 12000 12000 Interest on Loan 0 0 220 220 Closing Cash 9110 8970 14375 14375

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