Homework

Chapter 21 Homework

Due Week 8 and worth 10 points

Directions: Answer the following four questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your homework assignment using the homework assignment link in the course shell.

E21-1

Adler Company has always done some planning for the future, but the company has never prepared a formal budget. Now that the company is growing larger, it is considering preparing a budget.

Instructions:

Write a memo to Jim Dixon, the president of Adler Company, in which you define budgeting, identify the budgets that comprise the master budget, identify the primary benefits of budgeting, and discuss the essentials of effective budgeting.

E21-2

Edington Electronics Inc. produces and sells two models of pocket calculators, XQ-103 and XQ-104. The calculators sell for $15 and $25, respectively. Because of the intense competition Edington faces, management budgets sales semiannually. Its projections for the first 2 quarters of 2014 are as follows.

	Unit Sales
Product	Quarter 1	Quarter 2
XQ-103	20,000	22,000
XQ-104	12,000	15,000

No changes in selling prices are anticipated.

Instructions:

Prepare a sales budget for the 2 quarters ending June 30, 2014. List the products and show for each quarter and for the 6 months, units, selling price, and total sales by product and in total.

E21-8

Rodriguez, Inc., is preparing its direct labor budget for 2014 from the following production budget based on a calendar year.

Quarter	Units	Quarter	Units
1	20,000	3	35,000
2	25,000	4	30,000

Each unit requires 1.5 hours of direct labor.

Instructions:

Prepare a direct labor budget for 2014. Wage rates are expected to be $16 for the first 2 quarters and $18 for quarters 3 and 4.

E21-16

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, 2014.

June 30, 2014, 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

*Dividends are payable 30 days after declaration to shareholders of record on the declaration date.

Trenshaw Company wants to keep a minimum cash balance of $25,000.

Instructions:

(a) Prepare a cash budget for the month ended July 31, 2014, 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.