Norman Medical Center has provided you with the following budget information for July: Norman has a policy of maintaining a minimum cash balance of $30,000 and borrows only in $1,000 increments. How much will Norman borrow in July?

Question

Norman Medical Center has provided you with the following budget information for July:  Norman has a policy of maintaining a minimum cash balance of $30,000 and borrows only in $1,000 increments. How much will Norman borrow in July?

Quizplus · Accepted Answer

To determine how much Norman needs to borrow in July, we need to calculate the shortfall between the total cash inflows and outflows for the month.

Total Cash Inflows: 
- Beginning Cash Balance: $40,000 
- Cash Collections: $410,000 
- Total Cash Inflows: $450,000

Total Cash Outflows: 
- Salaries and Wages: $240,000 
- Rent: $15,000 
- Supplies: $80,000 
- Utilities: $20,000 
- Insurance: $5,000 
- Other Expenses: $30,000 
- Total Cash Outflows: $390,000

Net Cash Inflow (outflow): $60,000

Since Norman has a policy of maintaining a minimum cash balance of $30,000, we need to ensure that our ending cash balance for July is at least $30,000.

Ending Cash Balance: 
- Beginning Cash Balance: $40,000 
- Net Cash Inflow (outflow): $60,000 
- Ending Cash Balance: $100,000

Since our ending cash balance is $100,000, which is $70,000 above our minimum cash balance requirements, we need to borrow $1,000 to bring our ending cash balance down to the desired amount of $30,000.

Therefore, the amount Norman will borrow in July is $101,000 (D).

Norman Medical Center Has Provided You with the Following Budget