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Compute the amount of funds that needs to be borrowed

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1) Which of these items are relevant to Ortiz's decision about which of these products it will launch?
The following items are relevant to Ortiz's decision: additional development costs, unit-level costs, bath-level costs and product live cycle. The two items that are not relevant to the decisions are the research and development costs and the facility-level costs. The reason for research and development costs are not relevant is because they are sunk costs. In addition, the facility-level costs are unavoidable; therefore, they are not relevant.
I am confused to what else I need to show work for answer.

2) Compute the amount of funds that needs to be borrowed.
Beginning cash 500
Cash receipts
Cash sales 3,000
Receivable from Dec. 2,500
Receivable during January (2000*90%) 1,800 7,300
Total cash available 7,800
Less cash needed:
January payments 12,000
Desired cash balance 500 12,500
Amount needs to be borrowed (shortage) (4,700)

3) Compute the amount of interest expense that will appear on the January 31 pro forma income statement.
Interest expense = (4,700X12% per year X1/12) = $47.

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The solution computes the amount of funds that needs to borrowed.

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Problem 1. Ortiz Manufacturing is considering developing and marketing one of two new products, A and B. It has accumulated the following information about the two products:

Required:
1) Which of these items are relevant to Ortiz's decision about which of these products it will launch?
Relevant items:
a) Additional development costs to bring product to market.
b) Expected annual sales
c) Expected annual unit-level costs
d) Expected annual batch level costs
e) Expected product life cycle.
Explanation:
Research and development costs incurred to date are irrelevant because they are sunk costs and cannot be ...

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Radhika Lakshmi, MPhil
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  • MCom, Annamalai University
  • IATA, International Air Transport Association
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