Question

Carols Chocolate company

Carol's Chocolate Company has prepared its third quarter budget and provided the following data: Jul Aug Sep Cash collections $49,000 $39,500 $47,200 Cash payments: Purchases of direct materials 30,000 21,900 18.000 Operating expenses 12.400 8400 1 1,400 Capital expenditures 13,400 24.200 The cash balance on June 30 is projected to be $4000. The company has to maintain a minimum cash balance of $5,000 and is authori borrow at the end of each month to make up any shortfalls. It may borrow in increments of $5,000 and has to pay interest every month a rate of 4%. All financing transactions are assumed to take place at the end of the month. The loan balance should be repaid in incremen whenever there is surplus cash. Calculate the ending projected cash balance before financing for August O $5,000 O $46.700 {7833) $7167

Answer 1

SOLUTION

Projected cash balance before financing in August = $(7,833) thus option C is correct.

	July	August
Beginning cash balance	4,000	7,200
Plus: Cash receipts	49,000	39,500
Total cash available (A)	53,000	46,700
Less: Cash payments
Purchase of direct material	30,000	21,900
Operating expense	12,400	8,400
Capital expense	13,400	24,200
Interest payment	0	(10,000*4%*1/12)= 33
Total cash payments (B)	55,800	54,533
Ending cash balance before financing (A-B)	(2,800)	(7,833)
Borrowing	10,000	15,000
Cash at end	7,200	7,167