The Sunflower, Inc makes and sells tasty hamburgers for S8 per unit with a unit

ID: 2562612 • Letter: T

Question

The Sunflower, Inc makes and sells tasty hamburgers for S8 per unit with a unit variable cost of S6. All sales are for cash and the variable costs are paid immediately. The company has budgeted the following data for November 20,000 units Sales Cash, beginning balance Selling and administrative (of which depreciation, $5,000) Required minimum cash balance $ 34,000 S $ 33.000 53,000 20 If necessary, the company will borrow cash from a bank on the first day of November. Assume that t borrowing can be made in any (exact) amount, but bears interest at 2% per month. The November interest will be paid in cash during November. What is the closest amount of cash that must be borrowed on November to cover all cash disbursements and to obtain the desired November 30 cash balance 7,000 7,143 12,000 B. S C. S D. S2,245 E. None of the above

Explanation / Answer

Beg. Balance

$ 34,000

Add: Sales

$ 160,000

Total Cash

$ 194,000

Less: Variable cost

$ 120,000

Less: Selling & Admin.

$ 48,000

Less: Required cash balance

$ 33,000

Credit from bank

$ (7,000)

Interest to credit

$ (140)

Total credit

$ (7,140)

Sales = $ 8 x 20,000 = $ 160,000

Variable cost = $ 6 x 20,000 = $ 120,000

Total amount required $ 7,140 is closest to $ 7,143.

Hence option “B. $ 7,143” is correct answer.