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 2 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 15th 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

Feb March April May June July 88,279 10,000 247,500 27,240 12,000 297,000 35,450 15,100 373,725 64,011 16,250 402,188 139,535 16,675 412,706 226,961 16,000 396,000 - 74,250 224,235 241,313 89,100 112,118 24,750 29,700 338,085 383,130 203,850 219,375 101,925 | 109,688 247,624 120,656 37,373 405,653 225,113 112,556 237,600 123,812 40,219 401,631 216,000 108,000 148,500 135,000 67,500 252,450 162,000 81,000 1) Cash Budget of Java Corp. A) Cash balance @ April - Closing balance of Previous month. Feb and March were calculated in reverse Sales (units) Sales value @ 24.75 on units sold Cash collections 60% - Month of sale -60% on sale value of the same month 30% - month after sale - on the sale value of previous month 10%- 2nd month after sale - on the sale value of 2 months before B) Total cash collections Cost of Goods sold @ 13.50 on units sold Material cost @ 50% of COGS (above) C) Cash paid to material vendor - Materials are purchased one month in advance 75% - Month of purchase - on the purchase value of next month 25% - Month after purchase - on the purchase value of same month Factory worker wages (paid in same month) -50% of COGS above Payroll taxes on above @ 7.65% C)Total cash payments to vendor, factory wages and payroll taxes D)Other payments Lease payment Office salaries Management salaries Trash removal costs Utility costs @ 20 cents [ 20 cents = 0.20 dollar) on units sold Equipment maintenance @ 35 cents [ 35 cents = 0.35 dollar) on units sold Insurance premium Dividends Income tax payment Total other payments D) Total cash payments E) Net cash balance available (B)-(D) F) Closing balance of cash (A)-E) 60,750 16,875 67,500 5,164 150,289 76,444 20,250 81,000 6,197 183,890 82,266 84,417 25,481 27,422 101,925 109,688 7,797 8,391 217,469 229,918 81,000 28,139 112,556 8,611 230,306 27,000 108,000 8,262 143,262 21,750 10,500 20,000 1,500 2,000 3,500 | 21,750 10,500 20,000 1,500 2,400 4,200 21,750 10,500 20,000 1,500 3,020 5,285 21,750 10,500 20,000 1,500 3,250 5,688 15,000 21,750 10,500 20,000 1,500 3,335 5,836 21,750 10,500 20,000 1,500 3,200 5,600 25,000 59,250 209,539 - 61,039 27,240 60,350 244,240 8,210 35,450 30,000 92,055 309,524 28,561 64,011 77,688 307,605 75,525 139,535 87,921 62,550 318,227 205,812 87,425 | 195,819 226,961 422,779

3) With reference to the cash required to purchase a machinery by July, Java Corp has an opening cash balance of $ 226,961 which is sufficient to purchase a new machinery of $ 175, 000. the closing cash after considering purchase in July is $ 247,779 ($ 422,779- $ 175,000) 2) Income statement of Java Corp for June Amount Amount Sales (Refer Cash Budget) 412,706 Less : Manufacturing costs Material costs (Refer Cash Budget) - 112,556 Factory worker wages (Refer Cash Budget) - 112,556 Payroll taxes on wages (Refer Cash Budget) 8,611 - 233,723 Operating profit 178,983 Less :Other expenses Lease payment (Refer Cash Budget) - 21,750 Office salaries (Refer Cash Budget) - 10,500 Management salaries (Refer Cash Budget) - 20,000 Trash removal costs (Refer Cash Budget) - 1,500 Utility costs @ 20 cents [ 20 cents = 0.20 dollar) on units sold -(Refer Cash Budget) 3,335 Equipment maintenance @ 35 cents [ 35 cents = 0.35 dollar) on units sold - (Refer Cash Budget) 5,836 Insurance premium @ 15000 for May-July i.e., 15000/3 - 5,000 Depreciation (Given) - 21,265 - 89,186 Profit before tax 89,797 Income taxes @ 11.50% - 10,327 Profit after tax 79,470 UOM 25000 4) Shares outstanding Quarterly dividend payout (Given) Annual rate $ 2 per share - 0.50$ per quarter ($25000/ $(2/ 4quarters) Number of shares outstanding Number 50000