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 OctoberSales$170,000 $200,000 $180,000 $175,000 Cost of goods sold 102,000 120,000 108,000 105,000 Gross margin 68,000 80,000 72,000 70,000 Selling and administrative expenses: Selling expense 30,600 34,000 30,600 28,000 Administrative expense* 23,800 30,600 21,600 24,500 Total selling and administrative expenses 54,400 64,600 52,200 52,500 Net operating income$13,600 $15,400 $19,800 $17,500

*Includes $2,000 depreciation each month.

1. Sales are 25% for cash and 75% on credit.
2. 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 $108,000, and June sales totalled $114,000.
3. 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 $37,050.
4. The company maintains its ending inventory levels at 80% of the cost of the merchandise to be sold in the following month. The merchandise inventory at June 30 is $57,000.
5. Land costing $8,000 will be purchased in July.
6. Dividends of $7,500 will be declared and paid in September.
7. The cash balance on June 30 is $21,000; the company must maintain a cash balance of at least this amount at the end of each month.
8. 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 25% for cash and 75% on credit. However, credit sales from July, August, and September are collected over a three-month period, with 20% collected in the month of sale, 70% collected in the month following sale, and 10% 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 20% of the cost of merchandise to be sold in the following month. The merchandise inventory on June 30 remains $57,000, and accounts payable for inventory purchases on June 30 remain $37,050.

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.

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.

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

3. Using the president's new assumptions, make a cash budget for July, August, September, and for the quarter in total.