The Carlquist Company makes and sells a product called Product K. Each unit of Product K sells for £24 and has a unit variable cost of £18. The company has budgeted the following data for November:
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.* Sales of $£ 1,152,000$, all in cash.
*A cash balance on November 1 of $£ 48,000$.
* Cash dis bursements (other than interest) during November of $£ 1,160,000$.
*A minimum cash balance on November 30 of $£ 60,000$.
The amount of cash that must be borrowed on November 1 to cover all cash disbursements and to obtain the desired November 30 cash balance is

A)£20,000.
B)£21,000.
C)£37,000.
D)£38,000.

Question

The Carlquist Company makes and sells a product called Product K. Each unit of Product K sells for £24 and has a unit variable cost of £18. The company has budgeted the following data for November:
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.* Sales of $£ 1,152,000$, all in cash.
*A cash balance on November 1 of $£ 48,000$.
* Cash dis bursements (other than interest) during November of $£ 1,160,000$.
*A minimum cash balance on November 30 of $£ 60,000$.
The amount of cash that must be borrowed on November 1 to cover all cash disbursements and to obtain the desired November 30 cash balance is

A)£20,000.
B)£21,000.
C)£37,000.
D)£38,000.

Quizplus · Accepted Answer

First, we need to calculate the total cash disbursements for November:
Direct material purchases: 6,000 units × £8 per unit = £48,000
Direct labour cost: 6,000 units × £12 per unit = £72,000
Variable overhead: 6,000 units × £2 per unit = £12,000
Fixed overhead: £60,000
Interest payment: £21,000 × 2% = £420

Total cash disbursements = £192,420

Next, we need to calculate the desired ending cash balance by adding the required minimum cash balance to the cash disbursements:
Desired ending cash balance = £20,000 + £192,420 = £212,420

Finally, we need to calculate the amount of cash that must be borrowed on November 1 by subtracting the beginning cash balance and cash receipts from the desired ending cash balance:
Cash to be borrowed = £212,420 - (£75,000 + £116,420) = £21,000

Therefore, the answer is B) £21,000, as this is the amount of cash that must be borrowed on November 1 to cover all cash disbursements and to obtain the desired November 30 cash balance.

The Carlquist Company Makes and Sells a Product Called Product £1,152,000£ 1,152,000£1,152,000

The Carlquist Company Makes and Sells a Product Called Product $£ 1,152,000$