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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:

1. Budgeted monthly absorption costing income statements for July to October are as follows:

	July				August				September				October
Sales	$	160,000			$	190,000			$	170,000			$	165,000
Cost of goods sold		96,000				114,000				102,000				99,000
Gross margin		64,000				76,000				68,000				66,000
Selling and administrative expenses:
Selling expense		28,800				32,300				28,900				26,400
Administrative expense*		22,400				28,800				20,400				23,100
Total selling and administrative expenses		51,200				61,100				49,300				49,500
Net operating income	$	12,800			$	14,900			$	18,700			$	16,500

*Includes $2,000 depreciation each month.

2. Sales are 20% for cash and 80% on credit.
3. 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 $102,000, and June sales totalled $108,000.
4. Inventory purchases are paid for within 15 days. Therefore, 50% of a months 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 $35,100.
5. 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 $54,000.
6. Land costing $7,500 will be purchased in July.
7. Dividends of $7,000 will be declared and paid in September.
8. The cash balance on June 30 is $20,000; the company must maintain a cash balance of at least this amount at the end of each month.
9. 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.

The company's president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. He revises the cash collection and ending inventory assumptions as follows:

1. Sales continue to be 20% for cash and 80% on credit. However, credit sales from July, August, and September are collected over a three-month period, with 25% collected in the month of sale, 60% collected in the month following sale, and 15% in the second month following sale. Credit sales from May and June are collected during the third quarter using the collection percentages specified in the main section.
2. The company maintains its ending inventory levels for July, August, and September at 25% of the cost of merchandise to be sold in the following month. The merchandise inventory on June 30 remains $54,000, and accounts payable for inventory purchases on June 30 remain $35,100.

Required: 1. Using the president's new assumptions in (1) above, prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. JANUS PRODUCTS, INC. Schedule of Expected Cash Collections July August September Quarter Cash sales $ 20,000 Credit sales May June July August September Total cash collections $ 20,000 $ 0 $ 05 0 2. Using the president's new assumptions in (2) above, prepare the following for merchandise inventory: a. A merchandise purchases budget for July August, and September. JANUS PRODUCTS, INC. Merchandise Purchases Budget July August September Total needs b. A schedule of expected cash disbursements for merchandise purchases for July August, and September and for the quarter in total. Quarter JANUS PRODUCTS, INC. Schedule of Expected Cash Disbursements July August September Accounts payable, June 30 July purchases August purchases September purchases Total cash disbursements 0 0 0 0 3. Using the president's new assumptions, prepare a cash budget for July, August September, and for the quarter in total. (Any "Repayments" and "Interest" should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required.) JANUS PRODUCTS, INC Cash Budget For the Quarter Ended September 30 July August September Quarter 0 0 0 0 Total cash available Deduct: Disbursements: 0 Total disbursements Excess (deficiency) of cash available over disbursements Financing Borrowings Repayments Interest Total financing 0 0 0

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