The Carlquist Company makes and sells a product called Product K. Each unit of P

Question

The Carlquist Company makes and sells a product called Product K. Each unit of Product K sells for $39 and has a unit variable cost of $23. The company has budgeted the following data for November:

• Sales of $2,242,500, all in cash.

• A cash balance on November 1 of $55,000.

• Cash disbursements (other than interest) during November of $2,251,700.

• A minimum cash balance on November 30 of $60,000.

    
If necessary, the company will borrow cash from a bank. The borrowing will be in multiples of $1,000 and will bear interest at 2% per month. All borrowing will take place at the beginning of the month. The November interest will be paid in cash during November.
The amount of cash needed to be borrowed on November 1 to cover all cash disbursements and to obtain the desired November 30 cash balance is:

• Sales of $2,242,500, all in cash.

• A cash balance on November 1 of $55,000.

• Cash disbursements (other than interest) during November of $2,251,700.

• A minimum cash balance on November 30 of $60,000.

Explanation / Answer

Total cash inflow = sales + cash balance on November 1                                     = 2242500+55000                                     = 2297500 Total cash outflow = Cash disbursements (other than interest) during November                                         = 2251700 Actual cash remain on nov 30= 2297500-251700                                                           = 45800 Required cash = 60000 Amount required to borrow = 60000-45800                                                            = 14200 Int = 14200@2% = 284 total amount required alomgwith int = 14200+284 = 14484 borrowing should be in multiples of $1,000 Thus amount required = 15000

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