Read the case given below and answer the questions given at the end.

CASE STUDY-2:

RMT ltd are on verge of commencing commercial production for which the following projections are available for first 12 months of operations.

I) Sales and production: 1 machine per month

II) Average selling price: Basic price Rs. 40, 00,000Excise duty at 10%Value Added tax (VAT) at 5%

III. Material cost 60% of basic sales price

IV. Employment cost: Category Number Monthly Cost

Manager 8 Rs. 10,000 each  Supervisor 10 Rs. 6,500 each Worker 50 Rs. 4,000 each

V. Power and Fuel : Rs. 6, 00,000 per month

VI. Factory Overheads : Rs. 75,000 per month

VII. Selling Overheads : Rs: 1, 00,000 per month

VIII. Sales Collection 30 days

IX. Material cost payment: 70% in the same month and balance in next month.

X. Production time: 30 days

XI. Entire work force is engaged from day 1 of the commercial production and payment to employees is made in the next month.  For other expenses the company has a credit of 1 month. VAT is payable in the next month of sales.

XII. The Bank has allowed the company a borrowing limit of Rs. 45,00,000 on which interest at the rate of 15% is charged every, quarter, which is calculated based on average drawing of each quarter and is payable at the beginning of the next quarter. ASE S

Q1. Prepare a cash budge for the 5 months (Jan to May) and give your comment. You may make relevant assumptions if any.
Q2. What are the motives of an organization for holding cash?