Patrick Industries makes and sells a product called Product K. each unit of prod

Question

Patrick Industries makes and sells a product called Product K. each unit of product K sells for $24 dollars and has a unit variable cost of $18. The company has budgeted the following data for November: Sales of $1,152,200, all in cash. A cash balance on November 1 of $48,000. Cash disbursements (other than interest) during November of $1,160,000. 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: $20,000 $21,000 $37,000 $38,000

Explanation / Answer

Cash Balance Position   November Details Amt $ Opening Cash balance                48,000 Add Sales Receipts          1,152,200 Less : Cash Disbursement except interest         (1,160,000) Net Cash balance before borrowing                40,200 Required Cash balance at month end                60,000 Cash short fall                19,800 Interest is 2% monthly So Net Borrowing required=19800/0.98=                20,204 Amount borrowed will be                  21,000 Less: Interest @2% for Nov                        420 Net Cash Balance Nov end=                60,780 So Required borrowing on Nov 1 is = $     21,000.00

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