Question

Given the following information for Jawa Corp. prepare a full cash budget for the months of April, May. and June. Feb Mar Apr May June July Sales in Units 10,000 12,000 15,100 16,250 16,675 16,000 All units are sold at a price of $24.75, with a per unit cost of $13.50. Sales are collected as follows: 60% month of sale, 30% month after sale and remainder 2nd month after sale. Purchases of materials, which account for 50% of the product cost (remainder of the product cost is Factory worker wages) are paid for 75% month of purchase and 25% month after purchase. Materials are purchased a month in advance. In addition, the following are paid monthly: Building Lease $21,750, Office salaries $10,500, Management Salaries $20,000, Trash removal $1,500, Utilities based on a rate of 20 cents per unit, Payroll taxes at the rate of 7.65% (paid on all wages), Equipment maintenance based on a rate of 35 cents per unit The company will also be making the following payments: May Insurance payment for the months of May-July $15,000, in April income tax deposit of $30,000, the company will declare a quarterly dividend in May to be paid June 15 of $25,000, Employee first aid training at a cost of $2,500 is planned for July. Depreciation is $21,265 per month based on straight line and income taxes are based on an average effective tax rate of 11.50%. At the start of April, the company had a cash balance of $35,450. Requirement #2 Based on the previous information prepare a traditional income statement (in proper format) for the month of June. Requirement #3 The company likes to maintain a cash balance of $30,000 at all times. They are considering purchasing new machinery at the beginning of July at a cost of $175,000. Do they have a sufficient amount of cash on hand to make this purchase or would they need to make arrangements for any financing? Requirement #4 Given that the company has the following dividend policy: Dividends are paid quarterly based on the annual rate of $2.00 per share. How many shares of stock are currently outstanding?

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Answer 1

Answer :

(a).	Cash budget
	Sales budget		Feb	Mar	Apr	May	Jun	Jul
	Units		10000	12000	15100	16250	16675	16000
	Price		24.75	24.75	24.75	24.75	24.75	24.75
	Sales value		247500	297000	373725	402187.5	4125706.3	396000
	Collection of sales
	pts		Feb	Mar	Apr	May	Jun	Jul
	60% current month		148500	178200	224235	241312.5	247623.8	237600
	1 month 30%			74250	89100	112117.5	120656.3	123811.9
	2 month 10%				24750	29700	37372.5	40218.75
	Collection		148500	252450	338085	383130	405652.5	401630.6
	Purchase budget		Feb	Mar	Apr	May	Jun	Jul
	Units		10000	12000	15100	16250	16675	16000
	Price		13.5	13.5	13.5	13.5	13.5	13.5
	Sales value		135000	162000	203850	219375	225112.5	216000
	Payments		Feb	Mar	Apr	May	Jun	Jul
	50% on material		67500	81000	101925	109687.5	112556.3	108000
	50% workers		67500	81000	101925	109687.5	112556.3	108000
	75% same month	a	50625	60750	76443.75	82265.63	84417.19	81000
	25% next month	b		16875	20250	25481.25	27421.88	28139.06
	1 month adv material	c	81000	101925	109687.5	112556.3	108000	0
	Total Payments	a+b+c	131625	179550	206381.3	220303.1	219839.1	109139.1
	Cash Budget				Apr	May	Jun	Jul
	Opening cash balance				35450	67702	144598	233935
	Sales Collection	a			338085	383130	405652.5	401630.6
	Expenses
	Purchase payment				206381	220303	219839	109139
	Building lease				21750	21750	21750	21750
	Off salaries				10500	10500	10500	10500
	Mgmt salaries				20000	20000	20000	20000
	Trash				1500	1500	1500	1500
	Utilities				3020	3020	3020	3020
	Payroll tax				7397	8243	8556	8349
	Equipment				5285	5688	5836	5600
	Insurance					15000
	Tax Deposit				30000
	Dividend						25000
	First aid planned only						0
	Total cost
					305833	306233	316316	180038
	Change in cash	pat + dep			32252	76897	89336	221592
	Closing cash	op + chg			67702	144598	233935	455527
2.	Income statement for June
	Particulars						June
	Sales						412706
	Expenses						112556
	Wages						112256
	Building lease						21750
	Off salaries						10500
	mgmt salaries						20000
	Trash						1500
	Utilities						5484
	Payroll tax						1913
	Equipment						9598
	Total cost						295857
	ebt						116849
	Tax					11.50%	13437.66
	pbt						103412
3.	As seen from the above working the closing cash of July is 455527
	Therefore the company will not require any financing
4	Dividend declared amount			a	25000
	Per share dividend			b	2
	Shares outstanding			a/b	12500

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