Question

Blueline Printing's board of directors was presented with the following information about operations for an upcoming three-month period. The board desires to declare a dividend at the end of June, but still maintain cash on hand of $350,000. Blueline began April with $78,000 of cash on hand. Prepare a cash budget, and determine how much cash will be available for the dividend.

	April	May	June
Customer receipts	$750,000	$780,000	$820,000
Cash paid for direct materials	220,000	225,000	270,000
Cash paid for direct labor	250,000	270,000	350,000
Factory overhead*	150,000	150,000	158,000
SG&A**	88,000	90,000	85,000
Taxes	17,000	19,000	17,000
Equipment purchase***			500,000
* Includes monthly depreciation of $100,000
** Includes monthly depreciation of $25,000
*** Equipment purchase to be paid for in July

	A.	Available for dividend $84,000
	B.	Available for dividend $94,000
	C.	Available for dividend $96,000
	D.	Available for dividend $97,000
	E.	Available for dividend $98,000
	F.	None of the above

Answer 1

Answer: None of the above

	April	May	June
Cash receipt
Customer receipt	750000	780000	820000
Total receipt (A)	750000	780000	820000
Cash payment
Cash paid for direct labor	250000	270000	350000
Factory overhead (less 100000)	50000	50000	58000
SG&A (less 25000)	63000	65000	60000
Taxes	17000	19000	17000
Total payment (B)	380000	404000	485000
Net cash flow (A)-(B)	370000	376000	335000
Add opening balance	78000	448000	824000
Closing cash balance	448000	824000	1159000
Cash balance at July end			1159000
Less minimum cash balance to be maintained			(350000)
cash available for dividend payment			809000

At the June ending the company have a sufficient funds in hand to pay the equipment purchased in July.

So after the cash balance of (809000-500000)=309000 is still available for dividend plan.

Hence there is no risk associated with the dividend plan.