H management would like to maintain a minimum cash

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(h) Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. Required:
Solution: 3. Schedule of expected cash disbursements—selling and administrative expenses April May June Quarter Commissions .......................... $ 7,200 * $ 8,640 $10,800 $26,640 Rent ........................................ 2,500 * 2,500 2,500 7,500 Other expenses ...................... 3,600 * 4,320 5,400 13,320 Total disbursements ............... $13,300 * $15,460 $18,700 $47,460 *Given. 4. Cash budget: April May June Quarter Cash balance, beginning ......................... $ 8,000 * $ 4,350 $ 4,590 $ 8,000 Add cash collections ............ 56,000 * 67,200 82,800 206,000 Total cash available ............. 64,000 * 71,550 87,390 214,000
Less disbursements: For inventory .................... 47,850 * 58,500 53,550 159,900 For expenses .................... 13,300 * 15,460 18,700 47,460 For equipment .................. 1,500 * 0 0 1,500 Total disbursements ............. 62,650 * 73,960 72,250 208,860 Excess (deficiency) of cash.. 1,350 * (2,410 ) 15,140 5,140 Financing: Borrowings ....................... 3,000 7,000 0 10,000 Repayments ..................... 0 0 (10,000) (10,000) Interest ($3,000 × 1% × 3 + $7,000 × 1% × 2) ..... 0 0 (230 ) (230 ) Total financing ..................... 3,000 7,000 (10,230 ) (230 ) Cash balance, ending .......... $ 4,350 $ 4,590 $ 4,910 $ 4,910 * Given.

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