Cottonwood, Inc. sells a user-friendly tablet computer to school kids for $120 p
ID: 2562602 • Letter: C
Question
Cottonwood, Inc. sells a user-friendly tablet computer to school kids for $120 per unit. An overseas company supp tablets to Cottonwood for $76 per unit. All sales are for cash and the variable costs are paid immediately. The company has budgeted the following data for November: Sales Cash, beginning balance Selling and administrative (of which depreciation, $5,000) Required minimum cash balance 5,000 units $34.000 $245,000 $30,000 6 If necessary, the com pany will borrow cash from a bank through their credit-line arrangement on the first day of each month. Assume that they can borrow any amount. The bank requires an interest payment at the end of each month at a monthly rate of 2%. What is the closest amount of cash that must be borrowed on November 1 to cover all cash disbursements and to maintain the desired November 30 cash balance? s 51,020 s 16.327 S 21,000 A. $ D. S E. 21,429 None of the above Page 4 of 9Explanation / Answer
The working for the amount of $16,327 is given below.:
Sales value 5,000 x $120 =$600,000
Cost of purchase 5,000 x $76 =$380,000
Cash payment for selling and administrative expenses =$240,000
Total cash payments =$620,000
Cash surplus =-$20,000
Beginning cash balance =$34,000
Cash available =$14,000
Minimum ending cash balance =$30,000
Cash deficit =$16,000
Interest on the shortage @2% $ 320
Amount to be borrowed =$16,327
Checking:
Cash available $14,000
Borrowing $16,327
Total Cash available $30,327
Interest @2% on $16,327 $ 327
Ending cash balance $30,000