Equipment purchase to be paid for in July Blueline Printing\'s board of director
ID: 2467189 • Letter: E
Question
Equipment purchase to be paid for in July
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 $250,000. Blueline began April with $75,000 of cash on hand. Prepare a cash budget, and determine how much cash will be available for the dividend. Is there any apparent risk associated with the dividend plan? April May June Customer receipts $ 700,000 $ 750,000 $ 800,000 Cash paid for direct materials 200,000 222,000 265,000 Cash paid for direct labor 245,000 265,000 300,000 Factory overhead* 140,000 145,000 154,000 SG&A** 86,000 89,000 83,000 Taxes 15,000 18,000 16,000 Equipment purchase*** 500,000 * Includes monthly depreciation of $100,000 ** Includes monthly depreciation of $25,000 ***Equipment purchase to be paid for in July
Explanation / Answer
Blueline Printing Cash Budget April May June In $ In $ In $ Cash Receipts Customer Receipts 700000 750000 800000 Total Receipts 700000 750000 800000 Cash Payments Cash paid for direct labour 245000 265000 300000 Factory overhead 40000 45000 54000 SG & A 61000 64000 58000 Taxes 15000 18000 16000 Total Payments 361000 392000 428000 Net Cash Flow 339000 358000 372000 (+) Opening balance 75000 414000 772000 Closing Cash balance 414000 772000 1144000 In $ Cash balance at June end 1144000 (-) Minimum cash balance to be maintained 250000 Cash available for Dividend payment 894000 At June end , the company have a sufficient funds in hand to pay the equipment purchase in July and after that cash balance of $394000 still available for dividend plan Hence apparently there is no risk associated with the dividend plan.
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