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Janus Products, Inc. - Cash Budget and Merchandise Inventory Analysis

Expected Cash Collections for July, August, and September

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: Budgeted monthly absorption costing income statements for July to October are as follows: 
 July August September October 
Sales $40,000 $70,000 $50,000 $45,000 
Cost of goods sold  24,000  42,000   30,000   27,000 
Gross margin  16,000  28,000   20,000   18,000 
Selling and administrative expenses:     
Selling expense 7,200 11,700     8,500     7,300 
Administrative expense*    5,600    7,200     6,100    5,900 
Total selling and administrative expenses  12,800 18,900   14,600   13,200 
Net operating income $ 3,200 $ 9,100 $  5,400 $  4,800 

a. Sales are 20% for cash and 80% on credit. 
b. 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  $30,000, and June sales totalled $36,000. 
c. 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 $11,700. 
d. 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 $18,000. 
e. Land costing $4,500 will be purchased in July. 
f. Dividends of $1,000 will be declared and paid in September. 
g. The cash balance on June 30 is $8,000; the company must maintain a cash balance of at least this amount at the end of each month. 
h. 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. 

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.

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