Question

The George Company has a policy of maintaining an end-of-month cash balance of at least $33,000. In months where a shortfall is expected, the company can draw In $1,000 Increments on a line of credit it has with a local bank, at an Interest rate of 12% per annum. All borrowings are assumed for budgeting purposes to occur at the beginning of the month, while all loan repayments (in $1,000 Increments of principal) are assumed to occur at the end of the month. Interest is pald at the end of each month. For April, an end-of-month cash balance (prior to any financing and Interest expense) of $14,000 is budgeted; for May, an excess of cash collected over cash payments (prior to any Interest payments and loan repayments) of $18,000 IS anticipated. a. What is the Interest payment estimated for April (there is no bank loan outstanding at the end of March)? (Do not round Intermediate calculations.) b. What is the total financing effect (cash Interest plus loan transaction) for May? (Do not round Intermediate calculations.) Estimated interest payment b. Total financing effect

Answer 1

Answer is given below

a) Estimated Interest payment for April $200 b) Total Financing effect for May $18,200 cash outflow ($18,000+$200) April May $33,800 $18,000 $51,800 Opening balance Excess of cash collected over cash payments cash balance Borrowing Interest Repayment Closing balance $14,000 $20,000 -$200 $200 -$18,000 $33,600 $33,800 a) Total Budgeted marketing expenses $45,192 b) Estimated cash payments $33,192 Third quarter sales Sales volume for 4th quarter 3,600 3,960|10% increase $0.20 per unit $792(3,960*$0.20) Variable marketing expense Total variable expense Fixed marketing expenses Salaries Depreciation Insurance Toil budgeted marketing expense $27,000 ($9000*3) $12,000 ($4000*3) $5,400 ($1800*3) $45,192 Estimated cash payment Toil budgeted marketing expense Less: Depreciation Estimated cash payment $45,192 $12,000 $33,192