1. Prepare sales and production budgets.
A Sheville Company is preparing its master budget for 2022. Relevant data pertaining to its sales
and production budgets are as follows.
a. Sales. Sales for the year are expected to total 2,100,000 units. Quarterly sales, as a
percentage of total sales, are 15%, 25%, 35%, and 25%, respectively. The sales price is
expected to be $70 per unit for the first three quarters and $75 per unit beginning in the
fourth quarter. Sales in the first quarter of 2023 are expected to be 10% higher than the
budgeted sales volume for the first quarter of 2022.
b. Production. Management desires to maintain ending finished goods inventories at 20%
of the next quarter's budgeted sales volume.
2. Prepare cash budget for a month.
The controller of Trenshaw Company wants to improve the company's control system by
preparing a month-by-month cash budget. The following information is for the month ending
July 31, 2022.
June 30, 2022, cash balance
$45,000
Dividends to be declared on July 15
12,000
Cash expenditures to be paid in July for operating expenses 40,800
Amortization expense in July
4,500
Cash collections to be received in July
90,000
Merchandise purchases to be paid in cash in July
56,200
Equipment to be purchased for cash in July
20,000
Trenshaw Company wants to keep a minimum cash balance of $25,000.
a. Prepare a cash budget for the month ended July 31, 2022, and indicate how much
money, if any, Trenshaw Company will need to borrow to meet its minimum cash
requirement.
b. Explain how cash budgeting can reduce the cost of short-term borrowing.