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ALLAMA IQBAL OPEN UNIVERSITY ISLAMABAD
LEVEL Paper Time Allowed NOTE Q.1 Give the information that follow, prepare a cash budget for the Sitara Group Industries for the first six months of 19x2. a. All prices and costs remain constant. b. Sales are 75% for credit and 25% for cash. c. With respect to credit sales. 60% are collected in the month after the sale, 30% in the second month, and 10% in the third. Bad-debt losses are insignificant. d. Sales actual and estimated are October 19X1 $300,000 November 19X1 350,000 December 19X1 400,000 January 19X2 150,000 February 19X2 200,000 e. f. March 19X2 April 19X2 May 19X2 June 19X2 July 19X2 $200,000 300,000 250,000 200,000 300,000 MBA Financial Management CC. 562/5535 3 Hrs Semester Spring 2006 Maximum Marks 100 Pass Marks 40

ATTEMPT FIVE QUESTIONS. ALL CARRY EQUAL MARKS

Payments for purchases of merchandise are 80% of the following month’s anticipated sales. Wages and salaries are. January March May $30,000 50,000 40,000 February April June $40,000 50,000 35,000

g h. i. j. k.

Rent is $2,000 a month. Interest of $7,500 is due on the last day of each calendar quarter, and no quarterly cash dividends are planned. A tax prepayment of $$50,000 for 19X2 incomes is due in April. A capital investment of $30,000 is planned in June to be paid for then. The company has a cash balance of $100,000 at December 31, 19X1, which is the minimum desired level for cash. Funds can be borrowed in multiples of $5,000. (Ignore interest on such borrowings.)

Suggested Solution By Prof. F.R. Tariq For any query please contact at azeez786@hotmail.com, 0333-4233770, 0321-4401660

Page 2 of 29 Q.1 Answer:Sitara Industries Cash Budget – January to June 19 x 2 Oct Sales
Credit Sales 300,000 225,000

Nov

Dec

Jan

Feb
200,000 150,000

Mar
200,000 150,000

Apr

May

June
200,000 150,000

350,000 400,000 150,000 262,500 300,000 112,500

300,000 250,000 225,000 187,500

Collections
60% 30%

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