Question 4 (20 marks) (A) Payment Inc. is preparing its cash budget for February

Question

Question 4 (20 marks) (A) Payment Inc. is preparing its cash budget for February. The budgeted beginning cash balance is $27,000. Budgeted cash receipts total $136,000 and budgeted cash disbursements total $128,000. The desired ending cash balance is $50,000. The company can borrow up to $110,000 at any time from a local bank, with interest not due until the following month. Required: Show all calculations and present your work in good accounting form as illustrated in the lectures and your course text. Prepare the company's cash budget for February in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance. (7 marks) (B) Knedler Corporation is preparing a bid for a special order that would require 720 liters of material CO1D. The company already has 200 liters of this raw material in stock that originally cost $9.90 per liter. Material CO1D is used in the company's main product and is replenished on a periodic basis. The resale value of the existing stock of the material is $9.60 per liter. New stocks of the material can be readily purchased for $10.10 per liter What is the relevant cost of the 720 liters of the raw material when deciding how much to bid on the special order? (4 marks) (C) Determine whether the following statements are True or False. (i) One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is. (3 marks) (ii) Only the variable costs identified with a product are relevant in a decision concerning whether to eliminate the product. (3 marks) (ii) All other things equal, it is profitable to continue processing a joint product after the split-off point so long as the incremental revenue from further processing exceeds the incremental costs of further processing. (3 marks)

Explanation / Answer

SOLUTION

(A) Cash Budget

Borrowings = Desired ending cash balance - Cash available

= $50,000 - $35,000 = $15,000

Amount ($) Cash balance, Beginning 27,000 Add: Cash receipts 136,000 Total cash available 163,000 Less: Cash disbursement (128,000) Excess (deficiency) of cash available over disbursements 35,000 Borrowings 15,000 Cash balance, Ending 50,000

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