P9-17 Janus Products Inc
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-October are as follows:
Cost of goods
Selling and administrative expenses:
Total selling and administrative
expenses 12,800 18,900
*Includes $2,000 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 $30,000, and June sales totaled
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% is paid in the following month. Accounts payable for inventory
purchases at June 30 total $11,700.
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 $18,000.
f. Land costing $4,500 will be purchased in July.
g. Dividends of $1,000 will be declared and paid in September.
h. 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.
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.
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
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.