Question

Zinc Corporation is developing its cash budget for this month. Each month, the firm manufactures and sells $15,000 of products, and it pays $10,000 for wages, taxes, cost of goods sold, and other operating expenses. Zinc has nothing in its checking account even though its target cash balance is $8,000. What amount will Zinc show on the "bottom line" of its cash budget for this month? That is, what will be Zinc's cash position?

Answer 1

shortfall of $3,000

Step-by-step explanation:

The computation of the amount shown in the bottom of the cash budget is shown below:

= Sale value of products - expenses incurred related to the costs of goods sold, wages, taxes ,and the other operating expenses - targeted cash balance

= $15,000 - $10,000 - $8,000

= -$3,000

Since the targeted cash balance is $8,000 but the net income is only $5,000 which results in a shortfall of $3,000