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JB Materials Co$.$ is a distributor that sells binders, paper and other school supplies. The company is planning its cash needs for the third quarter. In the past, JB 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 $ $51,000$ $ $81,000$ $ $61,000$ $ $56,000$

Cost of goods sold $28,40046,40034,40031,400$

Gross margin $22,60034,60026,60024,600$

Selling and administrative expenses:

Selling expense $10,50013,9009,6008,400$

Administrative expense$*6,2008,3007,2007,000$

Total selling and administrative expenses $16,70022,20016,80015,400$

Net operating income $ $5,900$ $ $12,400$ $ $9,800$ $ $9,200$

$*$Includes $$2,550$ depreciation each month.

Sales are $20\%$ for cash and $80\%$ on credit.

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 $$41,000,$ and June sales totalled $$47,000.$

Inventory purchases are paid for within $15$ days. Therefore, $50\%$ of a month$$s inventory purchases are paid for in the month of purchase. The remaining $50\%$ are paid in the following month. Accounts payable for inventory purchases at June $30$ total $$17,200.$

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 $$23,500.$

Land costing $$5,050$ will be purchased in July.

Dividends of $$1,550$ will be declared and paid in September.

The cash balance on June $30$ is $$9,100$; the company must maintain a cash balance of at least this amount at the end of each month.

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.

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