Budgeting
MODULE 8 - BUDGETING
4. Which of the following is least likely a reason why a company prepares its budget?
A. To provide a basis for comparison of actual performance
B. To communicate the company’s plans throughout the entire business organization
C. To control income and expenditure in a particular period.
D. To make sure the company expands its operations.
THEORIES:
Basic Concepts
1. The concept of “management by exception” refers to management’s consideration of
A. only those items that vary materially from expectations.
B. only rare events.
C. samples selected at random.
D. only significant unfavorable deviations.
5. Which of the following does not contribute to an effective budgeting?
A. Top management is involved in budgeting.
B. To give each manager a free hand in the preparation of the budget, the data within the
master budget are flexible.
C. The organization is divided into responsibility units.
D. There is communication of results.
8. A formal written statement of management’s plans for the future, packaged in financial terms,
is a:
A. Responsibility report.
C. Cost of production report.
B. Performance report.
D. Budget.
6. The budgets that are based on a very high levels of performance, like expected costs using ideal
standards,
A. assist in planning the operations of the company
B. stimulate people to perform better than they ordinarily would
C. are helpful in evaluating the performance of managers
D. can lead to low levels of performance
2. Budgets are related to which of the following management functions?
A. Planning
C. Control
B. Performance evaluation
D. all of these
22. Budgeting supports the planning process by encouraging all of the following activities except:
A. Requiring all organizational units to establish their goals for the coming period.
B. Increasing the motivation of managers and employees by providing agreed-upon
expectations.
C. Improving overall decision making by considering all viewpoints, options, and cost control
programs.
D. Directing and coordinating operations during the period.
7. Which of the following statements is incorrect?
A. An imposed budget is the same as a participative budget.
B. Preparation of the budget would be the responsibility of each responsibility unit.
C. Top management’s support is necessary to promote budget participation.
D. The top management should review and approve each responsibility unit’s budget.
3. Which of the following advantages does a budget mostly provide?
A. Coordination is increased.
B. Planning is emphasized.
C. Communication is continuous.
D. Comparison of actual versus budgeted data.
9. The primary role of the budget director and the budgeting department is to
A. Settle disputes among operating executives during the development of the annual
operating plan.
B. Develop the annual profit plan by selecting the alternatives to be adopted form the
suggestions submitted by the various operating segments.
C. Compile the budget and manage the budget process.
D. Justify the budget to the corporate planning committee of the board of directors.
24. Which of the following is NOT an advantage of budgeting?
A. It forces managers to plan.
B. It provides resource information that can be used to improve decision making.
C. It aids in the use of resources and employees by setting a benchmark that can be used
for the subsequent evaluation of performance.
D. It provides organizational independence.
10. The primary variable affecting active participation and commitment to the budget and the
control system is
A. Management efforts to achieve the budget rather than optimize results.
B. The rigid adherence to the budget without recognizing changing conditions.
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Budgeting
C. Top management involvement in support of the budget.
D. The opportunity budgeting gives to risk-taker managers for department growth.
11. The process of developing budget estimates by requiring all levels of management to estimate
sales, production, and other operating data as though operations were being initiated for the
first time is referred to as:
A. Forecasting.
C. Continuous budgeting.
B. Zero-based budgeting.
D. Program budgeting.
12. A variant of fiscal-year budgeting whereby a twelve-month projections into the future is
maintained at all times:
A. Forecasting.
C. Continuous budgeting.
B. Zero-based budgeting.
D. Calendar budgeting.
38. Which of the following is a contemporary approach to budgeting?
A. incremental approach
C. baseline approach
B. zero-based approach
D. both a and b are true
35. The method of budgeting which adds one month’s budget to the end of the plan when the
current month’s budget is dropped from the plan refers to
A. Long-term budget
C. Incremental budget
B. Operations budget
D. Continuous budget
51. Zero-base budgeting requires managers to
A. Justify expenditures that are increases over the prior period’s budgeted amount.
B. Justify all expenditures, not just increases over last year’s amount.
C. Maintain a full-year budget intact at all times.
D. Maintain a budget with zero increases over the prior period.
27. A continuous budget
A. is a budget that is revised monthly or quarterly.
B. is a medium term plan that consists of more than 2 years’ projections.
C. is appropriate only for use of a not-for-profit entity.
D. works best for an entity that can reliably forecast events a year or more into the future.
13. Zero-based budgeting:
A. involves the review of changes made to an organization’s original budget.
B. does not provide a summary of annual projections.
C. involves the review of each cost component from a cost/benefit perspective.
D. emphasizes the relationship of effort to projected annual revenues.
37. “Incremental budgeting” refers to
A. line-by-line approval of expenditures
B. setting budget allowances based on prior year expenditures
C. requiring top management approval of increases in budgets
D. using incremental revenues and costs in budgeting
18. A systematized approach known as zero-based budgeting:
A. Classifies the budget by the prior year’s activity and estimates the benefits arising from each
activity.
B. Commence with either the current level of spending or projected whichever is lower.
C. Presents planned activities for a period of time but does not present a firm commitment.
D. Divides the activities of individual responsibility centers into a series of packages that are
prioritized.
49. A budget plan for annual fixed costs that arises from top management decisions directly
reflecting corporate policy.
A. Flexible budget.
C. Discretionary budget.
B. Static budget.
D. Program budget.
36. The term “decision package” relates to
A. comprehensive budgeting
B. zero-based budgeting
20. Which of the following statements about Zero-based budgeting is incorrect?
A. All activities in the company are organized into break-up units called packages.
B. All costs have to be justified every budgeting period.
C. The process is not time consuming since justification of costs can be done as a routine
matter.
D. Zero-based budgeting includes variable costs only.
C. program budgeting
D. line budgeting
41. The budget approach that is more relevant when the continuance of an activity or operation
must be justified on the basis of its need or usefulness to the organization.
A. the incremental approach
C. the baseline approach
B. the zero-based approach
D. both a and b are true
34. Budgeting expenditures by purpose is called
A. program budgeting
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C. zero-based budgeting
Budgeting
B. line budgeting
D. flexible budgeting
B. Flexible budget allows management latitude in meeting goals whereas a master budget
is based on a fixed standard.
C. Master budget is for an entire production facility but a flexible budget is applicable to single
department only.
D. Master budget is based on one specific level of production and a flexible budget can be
prepared for any production level within a relevant range
28. A static budget is not appropriate in evaluating a manager's effectiveness if a company has
A. substantial fixed costs.
B. substantial variable costs.
C. planned activity levels that match actual activity levels.
D. no variable costs.
47. Which of the following is a difference between a static budget and a flexible budgets?
A. A flexible budget includes only variable costs; a static budget includes only fixed costs.
B. A flexible budget includes all costs, a static budget includes only fixed costs.
C. A flexible budget gives different allowances for different levels of activity, a static budget
does not.
D. There is no difference between the two.
45. Flexible budgeting is a reporting system wherein the
A. Budget standards may be adjusted at management’s discretion.
B. Planned level of activity is adjusted to the actual level of activity before the performance
report is prepared.
C. Reporting dates vary according to the managerial levels of the users.
D. Packages of activities vary from period to period.
17. A system that classifies budget requests by activity and estimates the benefits arising from
each activity:
A. Incremental budgeting system.
B. Static budgeting system.
C. Program planning and budgeting system.
D. Participative system.
15. A budget that presents the plan for a range of activity so that the plan can be adjusted for
changes in activity levels is referred to as:
A. Zero-based budgeting.
B. Continuous budgeting.
C. Flexible budgeting.
D. Program planning and budgeting system.
21. A budget that identifies revenues and costs with an individual controlling their incurrence is
A. Master budget
C. Product budget
B. Responsibility budget
D. None of the above
16. A flexible budget is
A. one that can be changed whenever a manager so desires
B. adjusted to reflect expected costs at the actual level of activity
C. one that uses the formula total costs = cost per unit x units produced
D. the same as a continuous budget
25. The difference between an individual's submitted budget projection and his or her best
estimate of the item being projected is an example of
A. padding the budget
B. adhering to zero-based budgeting assumptions
C. creating budgetary slack
D. being incongruent with participative budgeting
26. A series of budgets for varying levels of activity is a:
A. Variable cost budget.
C. Master budget.
B. Flexible budget.
D. Zero-based budget.
48. If a company wishes to establish a factory overhead budget system in which estimated costs
can be derived directly from estimates of activity levels, it should prepare a
A. flexible budget.
C. Discretionary budget.
B. Program budget.
D. Manufacturing budget.
43. Budget slack is a condition in which
A. Demand is low at various times of the year
B. Excess machine capacity exists in some areas of the plant
C. There is an intentional overestimate of expenses or an underestimate of revenues
D. Managers grant favored employees extra time-off
46. The basic difference between a master budget and a flexible budget is that a
A. Flexible budget considers only variable costs but a master budget considers all costs.
39. The procedure for setting profit objectives in which the determination of profit objectives is
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Budgeting
subordinated to the planning, and the objectives emerge as the product of the planning itself
is the
A. a priori method
C. practical method
B. theoretical method
D. a posteriori method
B. a forecast of operating expenses and related revenues.
C. a forecast of units of production.
D. concerned with the income-generating activities of a firm.
54. What is the proper preparation sequencing of the following budgets?
1. Budgeted Balance Sheet
2. Sales Budget
3. Selling and Administrative Budget
4. Budgeted Income Statement
A. 1, 2, 3, 4
C. 2, 3, 4, 1
B 2, 3, 1, 4
D. 2, 4, 1, 3
40. The procedure for setting profit objectives in which management specifies a given rate of
return that it seeks to realize in the long run by means of planning toward that end is the
A. a priori method
C. pragmatic method
B. theoretical method
D. ad hoc method
50. Budgeting process in which information flows top down and bottom up is referred to as:
A. Continuous budgeting.
C. Perpetual budgeting
B. Participative budgeting
D. Joint budgeting
29. In estimating the sales volume for a master budget, which of the following techniques may be
used to improve the projections?
A. Brainstorming.
B. Statistical analysis.
C. Estimating from previous sales volume.
D. All of these are useful.
42. Which of the following is not a potential problem with participative budgeting?
A. setting standards that are either too high or too low
B. padding the budget
C. build slack into the budget
D. all of the above are potential problems
30. Using the concept of ‘expected value” in sales forecasting means that the sales forecast to be
used is
A. developed using the indicator method
B. the sum of the sales expected by individual managers
C. based on expected selling prices of the products
D. based on probabilities
33. The ideal financial planning process would be
A. top-down planning.
B. bottom-up planning.
C. a combination of top-down and bottom-up planning.
D. None of the above
44. A common starting point in the budgeting process is
A. expected future net income.
C. to motivate the sales force.
B. past performance.
D. a clean slate, with no expectations.
31. Several sales forecasts are available from different sources and the managers have good ideas
about their likelihoods. This situation call for the use of
A. the expected value concept
C. indicator methods
B. historical analysis
D. a scatter diagram
57. Which one of the following is an external factor that would need to be considered in forming an
initial budget proposal?
A. changes in product design
B. introduction of a new product
C. competitors' actions
D. adoption of a new manufacturing process
53. An overly optimistic sales budget may result in
A. increases in selling prices late in the year.
B. insufficient inventories.
C. increased sales during the year.
D. excessive inventories.
14. Operating budgets are
A. a forecast of expected operating expenses.
56. Which of the following budgets provides the data for the preparation of the direct labor cost
budget?
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Budgeting
A. Direct materials purchase budget.
B. Cash budget.
C. Sales budget.
D. Production budget.
PROBLEMS:
Cost estimation formula
i. Management has prepared a graph showing the total costs of operating branch warehouses
throughout the country. The cost line crosses the vertical axis at P400,000. The total cost of
operating one branch is P650,000. The total cost of operating ten branches is P2,900,000.
For purposes of preparing a flexible budget based on the number of branch warehouses in
operation, what formula would be used to determine budgeted costs at various levels of
activity?
A.
Y = P400,000 + P250,000X
C. Y = P650,000 + P400,000X
B.
Y = P400,000 + P290,000X
D. Y = P650,000 + P250,000X
55. The increased use of automation and less use of the work force in companies has caused a
trend towards an increase in
A. both variable and fixed costs.
B. fixed costs and a decrease in variable costs.
C. variable costs and a decrease in fixed costs.
D. variable costs and no change in fixed costs.
32. In preparing a cash budget, which of the following is normally the starting point for projecting
cash requirements?
A. Fixed assets.
C. Accounts receivable.
B. Sales.
D. Inventories.
Sales budget
Purchases budget – merchandising concern
ii. PTO Company desires an ending inventory of P140,000. It expects sales of P800,000 and has
a beginning inventory of P130,000. Cost of sales is 65% of sales. Budgeted purchases are
A. P 530,000
C. P 810,000
B. P 790,000
D. P1,070,000
52. Recognition of the many uncertainties in budgeting is exemplified by companies normally
A. forecasting sales
B. establishing minimum required cash balances
C. forecasting only fixed costs
D. omitting expected dividend payments from budgeted disbursements
iii. Calypso Co. has projected sales to be P600,000 in January, P750,000 in February, and
P800,000 in March. Calypso wants to have 50% of next month’s sales needs on hand at the
end of a month. If Calypso has an average gross profit of 40%, what are the February 28
purchases?
A. P465,000
C. P775,000
B. P310,000
D. P428,000
19. Which of the following statements is True?
A. Under zero-based budgeting, a manager is required to start at zero budget levels each
period, as if the programs involved were being initiated for the first time.
B. The primary purpose of the cash budget is to show the expected cash balance at the end
of the budget period.
C. Budget data are generally prepared by top management and distributed downward in an
organization.
D. The budget committee is responsible for preparing detailed budget figures in an
organization.
iv. Blue Company budgeted purchases of P100,000. Cost of sales was P120,000 and the desired
ending inventory was P42,000. The beginning inventory was
A. P20,000
C. P42,000
B. P32,000
D. P62,000
23. Which of the following is a valid statement?
A. Responsibility budget identifies revenue and costs with the individual responsible for their
incurrence.
B. The best way to establish budget figures is to use last year’s actual cost and activity data
as this year’s budget estimates.
C. A sales budget and a sales forecast are the same thing.
D. The primary purpose of the cash budget is to show the expected cash balance at the end
of the budget period.
v. The payment schedule of purchases made on account is: 60% in the time period of purchase,
30% in the following time period, and 10% in the subsequent time period. Total credit
purchases were P200,000 in May, and P100,000 in June. Total payments on credit purchases
were P140,000 in June. What were the credit purchases in the month of April?
A. P200,000
C. P145,000
B. P100,000
D. P215,000
Production budget
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Budgeting
vi. Montalban Company’s sales budget shows the following expected sales for the following year:
Quarter
Units
First
120,000
Second
160,000
Third
90,000
Fourth
110,000
Total
480,000
The inventory at December 31 of the prior year was budgeted at 36,000 units. The quantity
of finished goods inventory at the end of each quarter is to equal 30% of the next quarter’s
budgeted sales of units.
How much should the production budget show for units to be produced during the first quarter?
A. 48,000
C. 132,000
B. 96,000
D. 144,000
What are the respective peso amounts of each material to be used in production during the
year?
Material LL
Material MM
Material NN
A.
P181,200
P1,026,800
P724,800
B.
P181,200
P1,026,800
P746,400
C.
P186,600
P1,057,400
P746,400
D.
P186,600
P1,057,400
P724,800
Raw materials purchases budget
x. If there were 30,000 pounds of raw material on hand on January 1, 60,000 pounds are desired
for inventory at December 31, and 180,000 pounds are required for annual production, how
many pounds of raw material should be purchased during the year?
A. 150,000 pounds
C. 120,000 pounds
B. 240,000 pounds
D. 210,000 pounds
vii. Lorie Company plans to sell 400,000 units of finished product in July an anticipates a growth
rate in sales of 5% per month. The desired monthly ending inventory in units of finished
product is 80% of the next month’s estimated sales.
There are 300,000 finished units in the inventory on June 30. Each unit of finished product
requires four pounds of direct materials at a cost of P2.50 per pound. There are 800,000
pounds of direct materials in the inventory on June 30.
How many units should be produced for the three-month period ending September 30?
A. 1,260,000
C. 1,331,440
B. 1,328,000
D. 1,424,050
xi. Silver Bowl Company manufactures a single product. It keeps its inventory of finished goods at
75% the coming month’s budgeted sales. It also keeps its inventory of raw materials at 50% of
the coming month’s budgeted production. Each unit of product requires two pounds of materials.
The production budget is, in units: May, 1,000; June, 1,200; July, 1,300; august, 1,600. Raw
material purchases in July would be
A. 1,525 pounds
C. 2,550 pounds
B. 2,900 pounds
D. 3,050 pounds
xii. Each unit of finished product uses 6 kilograms of raw materials. The production and inventory
budgets for May 2007 are as follows:
Beginning Inventory:
Finished goods
15,000 units
Raw materials
21,000 kg.
Budgeted unit sales
18,000 units
Planned ending inventory
Finished goods
11,400 units
Raw materials
24,400 kg.
During the production process, it is usually found that 10% of production units are scrapped as
defective and this loss occurs after the raw materials have been placed in process.
How many kilograms of raw materials should be purchased in June?
A. 89,800
C. 96,000
B. 98,440
D. 99,400
Ending inventory budget
viii. If the required direct materials purchases are 8,000 pounds and the direct materials required
for production is three times the direct materials purchases, and the beginning direct materials
are three and a half times the direct materials purchases, what are the desired ending direct
material in pounds?
A. 20,000
C. 12,000
B. 4,000
D. 32,000
Raw materials usage budget
ix. Minerva Company sells a single product. Budgeted sales for the year are anticipated to be
640,000 units. The estimated beginning and ending finished goods inventory are 108,000
and 90,000, respectively. A production of one unit requires the following materials:
Material LL
0.50 lb. @ P0.60
Material MM
1.00 lb. @ P1.70
Material NN
1.20 lb. @ P1.00
xiii. Violet Company manufactures a single product. It keeps its inventory of finished goods at twice
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Budgeting
the coming month’s budgeted sales, inventory of raw materials at 150% of the coming month’s
budgeted production requirements. Each unit of product requires two pounds of materials. The
production budgets in units consist of the following:.
May
1,000
June
1,200
July
1,300
August
1,600
Raw material purchases in June would be
A. 2,600 pounds
C. 2,400 pounds
B. 1,800 pounds
D. 2,700 pounds
Third
40,000 units
Fourth
65,000 units
Each unit of product requires 2.5 kilograms of direct materials. The company begins each
quarter with inventory of direct materials equal to 25 percent of the total quarter’s material
requirements.
What is the budgeted purchases of materials for the second quarter?
A. 113,750
C. 46,250
B. 109,375
D. 112,500
Indirect labor costs
xvii. Namuco, Inc. uses flexible budgeting for cost control. During the month of September,
Namuco, Inc. produced 14,500 units of finished goods with indirect labor costs of P25,375.
Its annual master budget reflects an indirect labor costs, a variable cost, of P360,000 based
on an annual production of 200,000 units. In the preparation of performance analysis for the
month of September, how much flexible budget should be allowed for indirect labor costs?
A. P30,000
C. P25,375
B. P29,167
D. P26,100
xiv. Sales Company is budgeting sales of 300,000 units of its only product for the coming year.
Production of one unit of product requires three pounds of Material Q and 2 pounds of Material
L. Inventory units at the beginning of the year are:
Actual, Jan. 1
Budgeted, Dec 31
Finished goods
60,000
50,000
Material Q
80,000
60,000
Material L
88,000
96,000
How many pounds of Material Q is Sales planning to buy during the coming year?
A. 850,000
C. 862,000
B. 890,000
D. 908,000
Cash receipts budget
Sales
xviii.Generous Company began its operations on January 1 of the current year. Budgeted sales
for the first quarter are P240,000, P300,000, and P420,000, respectively, for January,
February and March. Generous Company expects 20% of its sales cash and the remainder
on account. Of the sales on account, 70% are expected to be collected in the month of sale,
25% in the month following the sale, and the remainder in the following month.
How much should Generous receive from sales in March?
A. P304,800
C. P388,800
B. 294,000
D. P295,200
xv. Strama Company prepares its budgets on annual basis. The following beginning and ending
inventory unit levels are planned for the fiscal year of June 1, 2006 through May 31, 2007.
June 1, 2006
May 31, 2007
Raw material*
40,000
50,000
Work-in-process
10,000
10,000
Finished goods
80,000
50,000
*Two (2) units of raw material are needed to produce each unit of finished product.
If 500,000 finished units were to be manufactured during the 2006-2007 fiscal year by Strama
Company, the units of raw material needed to be purchased would be
A. 1,000,000 units
C. 1,020,000 units
B. 1,010,000 units
D.
990,000 units
Credit sales
xix. Mendrez Company has a collection schedule of 60% during the month of sales, 15% the
following month, and 15% subsequently. The total credit sales in the current month of
September were P80,000 and total collections in September were P57,000. What were the
credit sales in July?
A. P90,000
C. P45,000
B. P30,000
D. P32,000
xvi. Diliman Corporation includes the following quarterly budget for production:
Quarter
Production
First
60,000 units
Second
45,000 units
Cash collections
xx. Obligacion Company has P299,000 in accounts receivable on January 1, 2006. Budgeted
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Budgeting
sales for January are P860,000. Obligacion expects to sell 20% of its merchandise for cash.
Of the remaining sales, 75% are expected to be collected in the month of sale and the
remainder the following month.
The January cash collections from sales are:
A. P815,000
C. P471,000
B. P691,000
D. P987,000
B. P230,000
D. P251,400
xxiii.The Le Amore Company had the following budgeted sales for the first half of the current year:
Cash Sales
Credit Sales
January
P70,000
P340,000
February
50,000
190,000
March
40,000
135,000
April
35,000
120,000
May
45,000
160,000
June
40,000
140,000
xxi. Adel Company has the following sales forecasts for the selected three-month period in 2007:
Month
Sales
April
P12,000
May
7,000
June
8,000
Seventy percent of sales are collected in the month of the sale, and the remainder is collected
in the following month.
Accounts receivable balance (April 1, 2007)
P10,000
Cash balance (April 1, 2007)
5,000
Minimum cash balance is P5,000. Cash can be borrowed in P1,000 increments from the local
bank (assume no interest charges).
How much cash would be collected in June from sales?
A. P 7,700
C. P 8,000
B. P 8,500
D. P10,000
The company is in the process of preparing a cash budget and must determine the expected
cash collections by month. To this end, the following information has been assembled:
Collections on sales:
60% in month of sale
30% in month following sale
10% in second month following sale
The accounts receivable balance on January 1 of the current year was P70,000, of which
P50,000 represents uncollected December sales and P20,000 represents uncollected
November sales.
The total cash collected by Le Amore Company during the month of January would be:
A. P410,000
C. P344,000
B. P254,000
D. P331,500
xxii. The Avelina Company has the following historical pattern on its credit sales.
70 percent collected in month of sale
15 percent collected in the first month after sale
10 percent collected in the second month after sale
4 percent collected in the third month after sale
2 percent uncollectible
The sales on open account have been budgeted for the last six months of 2007 are shown
below:
July
P 60,000
August
70,000
September
80,000
October
90,000
November
100,000
December
85,000
The estimated total cash collections during the fourth calendar quarter from sales made on
open account during the fourth calendar quarter would be
A. P172,500
C. P265,400
Accounts receivable balance
xxiv.
As of January 1, 2007, the Liberal Sales Company had an account receivable of
P500,000. The sales for January, February, and March were as follows: P1,200,000,
P1,400,000 and P1,500,000, respectively. Of each month’s sales, 80% is on account. 60%
of account sales is collected in the month of sale, with remaining 40% collected in the following
month.
What is the accounts receivable balance as of March 31, 2007?
A. P720,000
C. P587,200
B. P480,000
D. P600,000
Credit to accounts receivable
xxv. Ironman Company is preparing its cash budget for the month ending November 30. The
following information pertains to Ironman’s past collection experience from its credit sales:
Current month’s sales
12%
Prior month’s sales
75%
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Budgeting
Sales two months prior to current month
6%
Sales three months prior to current month
4%
Cash discounts (2/30, net/90)
2%
Doubtful accounts
1%
Credit sales:
November – estimated
P2,000,000
October
1,800,000
September
1,600,000
August
1,900,000
How much is the estimated credit to Accounts Receivable as a result of collections expected
during November?
A. P1,730,200
C. P1,762,000
B. P1,757,200
D. P1,802,000
B. P1,600,000
D. P1,760,000
xxviii. Albatross Company started its commercial operations on September 30 of the current
year. Projected manufacturing costs for the first three months of operations are P1,568,000,
P1,952,000, and P2,176,000, respectively. Depreciation, insurance, and property taxes
represent P288,000 of the estimated manufacturing costs. Insurance was paid on September
30, and property taxes will be paid in July next year. Seventy-five percent of the remainder
of the manufacturing costs are expected to be paid in the month in which they are incurred,
with the balance to be paid in the following month. The cash payments for manufacturing
costs in the month of November are:
A. P1,568,000
C. P1,664,000
B. P1,952,000
D. P1,856,000
Ending cash balance
xxix.
Albania Company expects its June sales to be P300,000, which is 25% higher than its
May sales. Purchases were P200,000 in May and are expected to be P240,000 in June. All
sales are on credit and are collected as follows: 80% in the month of the sale and 20% in the
following month. All payments in the month of sales are given 2% discount. Sixty percent of
purchases are paid in the month of purchase to take advantage of purchase term of 1/10,
n/40. The remaining amount is paid in the following month. The beginning cash balance on
June 1 is P20,000. The ending cash balance on June 30 would be:
A. P64,160
C. P80,640
B. P73,000
D. P85,440
Increase in accounts receivable
xxvi.
Lazaro Company will open a new store on January 1. Based on experience from its other
retail outlets, Lazaro is making the following sales projections:
Cash Sales
Credit Sales
January
P600,000
P400,000
February
300,000
500,000
March
400,000
600,000
April
400,000
800,000
Lazaro estimates that 70% of the credit sales will be collected in the month following the month
of the sale, with the balance collected in the second month following the sale. Based on these
data, the balance in accounts receivable on January 31 will be increased by
A. 400,000
C. P120,000
B. P280,000
D. P580,000
Comprehensive
Question Nos. 30 through 33 are based on the following information:
Apollo Merchandiser asks your services to develop cash and other budget information for the first
quarter of 2007. In December 31, the store had the following balance:
Cash
P 55,000
Accounts receivable
4,370,000
Inventories
3,094,000
Accounts payable
1,330,550
Cash disbursements
xxvii. Cascades Company, a merchandising firm, is preparing its master budget and has
gathered the following data to help budget cash disbursements:
Budgeted data:
Cost of goods sold
P1,680,000
Desired decrease in inventories
70,000
Desired decrease in Accounts Payable
150,000
All of the accounts payables are for inventory purchases and all inventory items are purchased
on account. What are the estimated cash disbursements for inventories for the budget period?
A. P1,460,000
C. P1,900,000
The following information are relevant to 2007 operations:
Sales:
a. Each month’s sales are billed on the last day of the month.
b. Customers are allowed a 3 percent discount if payment is made within 10 days after the
billing date. Receivables are booked gross.
c. Sixty percent of the billings are collected within the discount period, twenty-five percent
441
Budgeting
are collected by the end of the month, nine percent are collected by the end of the second
month, and six percent are considered entirely uncollectible.
Sales
Purchases
January
P7,200,000
P4,200,000
February
6,600,000
4,800,000
March
6,000,000
3,600,000
April
7,800,000
5,400,000
Rajah collects 70% of sales is collection during the month of sale, 20% the following month and
9% in the second month. 1% of sales are deemed uncollectible.
Purchases:
1. Fifty four percent of all purchases and selling, general, and administrative expenses are
paid in the month purchased and the remainder in the following month.
2. Each month’s units of ending inventory is equal to one hundred thirty percent of the next
month’s units of sales.
3. The cost of each unit of inventory is P200.
4. Selling, general, and administrative expenses, of which P20,000 is depreciation, are
equal to fifteen percent of the current month’s sales.
In order to fully avail of the 2% discount, Rajah pays all the purchases by the tenth of the month
following the month of purchase.
Actual and projected sales are as follows:
November
December
January
February
March
April
UNITS
11,800
12,100
11,900
11,400
12,000
12,200
Sales for the month of May are expected to be P6,600,000 and the amount of purchases are
P6,000,000. Operating expenses to be paid during the month of May will be P1,440,000 and the
cash balance by May 1 is P2,200,000.
PESOS
P3,540,000
3,630,000
3,570,000
3,420,000
3,600,000
3,660,000
The Atlanta Corporation has forecast the following sales for the first seven months of the year:
January
February
March
April
xxx. The respective amounts of budgeted purchases for the months of January and February are:
A. P2,418,000 and P2,360,000
C. P2,250,000 and P2,436,000
B. P2,380,000 and P2,280,000
D. P3,570,000 and P3,420,000
P120,000
160,000
180,000
240,000
May
June
July
P120,000
200,000
220,000
Monthly material purchases are set equal to 20 percent of forecasted sales for the next month. Of
the total material costs, 40 percent are paid in the month of purchase and 60 percent in the following
month. Labor costs will run P60,000 per month, and fixed overhead is P30,000 per month. Interest
payments on the debt will be P45,000 for both March and June. Finally, Atlanta’s sales force will
receive a 3 percent commission on total sales for the first six months of the year, to be paid on June
30.
xxxi.
The budgeted cash disbursements for the month of February are:
A. P2,929,000
C. P2,949,000
B. P2,873,790
D. P2,853,790
xxxii. The amount of cash collected from sales during the month of January is:
A. P3,338,760
C. P3,404,100
B. P3,551,160
D. P3,556,560
xxxiv. How much will be paid in the month of January for the purchase of materials?
A. P 27,200
C. P137,856
B. P117,200
D. P 33,600
xxxiii. The number of units to be purchased during the month of March is:
A. 15,860
C. 12,000
B. 12,260
D. 15,600
xxxv. How much does Atlanta plan to disburse in the month of June?
A. P 41,600
C. P207,200
B. P100,000
D. P117,200
Rajah Enterprises is a growing retailer of home care products. During the first four months of the
following year, it forecasts the following sales and purchases:
Question Nos. 36 through 38 are based on the following:
442
Budgeting
Super Sales’ actual sales and purchases for April and May are shown here along with forecasted
sales and purchases for June through September.
April (Actual)
May (Actual)
June (forecast)
July (forecast)
August (forecast)
September (forecast)
Sales
P390,000
420,000
390,000
350,000
420,000
410,000
Question Nos. 39 through 45 are based on the following data:
The Ingo Corporation makes standard-size 2-inch fasteners, which it sells for P155 per thousand.
Irine Tee, the major stockholder, manages the inventory and finances of the company. She estimates
sales for the following months to be:
Purchases
P200,000
220,000
210,000
240,000
320,000
230,000
January
February
March
April
May
P263,500
P186,000
P217,000
P310,000
P387,500
(1,700,000 fasteners)
(1,200,000 fasteners)
(1,400,000 fasteners)
(2,000,000 fasteners)
(2,500,000 fasteners)
Last year Ingo Corporation's sales were P175,000 in November and P232,500 in December
(1,500,000 fasteners).
The company makes 10 percent of its sales for cash and 90 percent on credit. Of the credit sales,
30 percent are collected in the month after the sale and 70 percent are collected two months after.
Super Sales pays for 45 percent of its purchases in the month after purchase and 55 percent two
months after.
Ms. Tee is preparing for a meeting with Peninsula Banking Corporation to arrange the financing for
the first quarter. Based on her sales forecast and the following information she has provided, you
have to prepare a monthly cash budget, a monthly and quarterly pro forma income statement, a pro
forma quarterly balance sheet, and all necessary supporting schedules for the first quarter.
Labor expense equals 15 percent of the current month's sales. General overhead expense equals
P10,000 per month. Interest payments of P35,000 are due in June and September. A cash dividend
of P25,000 is scheduled to be paid in June. Tax payments of P30,000 are due in June and
September. There is a scheduled purchase for cash of an equipment, P290,000 in September.
Past history shows that Ingo Corporation collects 50 percent of its accounts receivable in the normal
30-day credit period (the month after the sale) and the other 50 percent in 60 days (two months after
the sale). It pays for its materials 30 days after receipt. In general, Ms. Tee likes to keep a two-month
supply of inventory in anticipation of sales. Inventory at the beginning of December was 2,600,000
units. (This was not equal to her desired two-month supply.)
Super Sales’ ending cash balance in May is P25,000. The minimum desired cash balance is
P20,000. The maximum desired cash balance is P50,000. Excess cash (above P50,000) is used to
buy marketable securities. Marketable securities are sold before borrowing funds in case of a cash
shortfall (less than P20,000).
The major cost of production is the purchase of raw materials in the form of steel rods, which are cut,
threaded, and finished. Last year raw material costs were P52 per 1,000 fasteners, but Ms. Tee has
just been notified that material costs have risen, effective January 1, to P60 per 1,000 fasteners. The
Ingo Corporation uses FIFO inventory accounting. Labor costs are relatively constant at P20 per
thousand fasteners, since workers are paid on a piecework basis. Overhead is allocated at P10 per
thousand units, and selling and administrative expense is 20 percent of sales. Labor expense and
overhead are direct cash outflows paid in the month incurred, while interest and taxes are paid
quarterly.
xxxvi. During the month of June, Super Sales expects to receive cash from sales amounting to:
A. P606,000
C. P398,100
B. P408,900
D. P359,100
xxxvii. The cumulative amount of marketable securities purchased as of July 31 amounts to:
A. P126,000
C. P143,300
B. 132,500
D. P 0
The corporation usually maintains a minimum cash balance of P25,000, and it puts its excess cash
into marketable securities. The average tax rate is 40 percent, and the company usually pays out 50
percent of net income in dividends to stockholders. Marketable securities are sold before funds are
borrowed when a cash shortage is faced. Ignore the interest on any short-term borrowings. Interest
on the long-term debt is paid in March, as are taxes and dividends.
xxxviii. The amount of loan to be obtained to maintain a balance of P50,000 cash as of September
30 will be:
A. P109.4
C. P 9.4
B. P 59.4
D. P 0.0
443
Budgeting
xliii. The cost of goods sold for the first quarter of the coming year amounts to:
A. P363,800
C. P426,400
B. P453,600
D. P373,400
As of year-end, the Ingo Corporation balance sheet was as follows:
Ingo Corporation
Balance Sheet
December 31, 2006
ASSETS
Current assets:
Cash
Accounts receivable
Inventory
Total current assets
Plant and equipment, net of accumulated depreciation of P200,000
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
Long-term debt, 8%
Common stock
Retained earnings
Total Liabilities and Stockholders’ Equity
xliv. The total cash and marketable securities as of January 31 will be:
A. P45,450
C. P91,800
B. P25,000
D. P54,450
P
30,000
320,000
237,800
587,800
800,000
P1,387,800
xlv. The expected net income during the first quarter of the coming year is:
A. P 91,080
C. P 96,840
B. P161,400
D. P151,800
Question Nos. 46 through 48 are based on the Russon Corporation, a retailer whose sales are all
made on credit. Sales are billed twice monthly, on the 10th of the month for the last half of the prior
month’s sales, and on the 20th of the month for the first half of the current month’s sales. The terms
of all sales are 2/10, net 30. Based upon past experience, the collection of accounts receivable is
as follows:
P
93,600
400,000
504,200
390,000
P1,387,800
Within the discount period
On the 30th day
Uncollectible
xxxix. The budgeted production respective to each month of the first quarter of the coming year
are:
A. 1,400,000; 2,000,000; 2,500,000
C. 2,500,000; 2,000,000; 1,400,000
B. 1,400,000; 2,500,000; 2,000,000
D. 2,000,000; 1,400,000; 2,500,000
80%
18%
2%
xli. The expected cash collections on accounts receivable in the month of February are:
A. P224,750
C. P 93,000
B. P248,000
D. P186,000
Russon’s average markup on its products is 20% of the sales price. All sales and purchases occur
uniformly throughout the month. The sales value of shipments for May and the forecasts for the next
four months follow:
May (actual)
P500,000
June
600,000
July
700,000
August
700,000
September
400,000
Russon purchases merchandise for resale to meet the current month’s sales demand and to maintain
a desired monthly ending inventory of 25% of the next month’s sales. All purchases are on credit
with terms of net/30. Russon pays for 50% of a month’s purchases in the month of purchase and
50% in the month following the purchase.
xlii. The amount of accounts receivable outstanding as of March 31, 2007 is:
A. P217,000
C. P310,000
B. P224,750
D. P108,500
xlvi. How much cash can Russon plan to collect in September from sales made in August?
A. P337,400
C. P400,400
B. P343,000
D. P280,000
xl. The amount of accounts payable paid in March for the purchase of materials is:
A. P150,000
C. P104,000
B. P120,000
D. P130,000
444
Budgeting
xlvii.The budgeted peso value of Russon’s inventory on August 31 will be
A. P110,000
C. P112,000
B. P 80,000
D. P100,000
i.
xlviii. How much cash can Russon plan to collect from accounts receivable during July?
A. P574,000
C. P619,000
B. P662,600
D. P608,600
May
(P200,000 x 0.30)
Payments applicable to April purchase
Credit purchase in April: P20,000  0.10
Answer: A
The amount of fixed costs in operating branches’ 10 warehouses is P400,000 (the fixed cost
line intercepts the vertical axis).
Total operating costs
P2,900,000
Less fixed costs
400,000
Total variable costs (10 warehouses)
P2,500,000
Variable costs per branch: P2,500,000  10
P 250,000
ii. Answer: A
Cost of units sold
(0.65 x P800,000)
Add Desired ending inventory
Total cost of goods available for sale
Deduct Beginning inventory
Budgeted purchases
iii. Answer: A
Cost of goods sold
Add Ending Inventory
Total available for sale
Deduct Beginning inventory
Budgeted purchases, February
Budgeted sales, First Quarter
Add Required Ending Finished goods:
Total units required
Less Beginning Finished goods
Budgeted production in units
iv. Answer: D
Cost of sales
Add Desired ending inventory
Total available for sale
Deduct Budgeted purchases
Beginning inventory
P120,000
42,000
162,000
100,000
P 62,000
v. Answer: A
30% x 160,000
120,000
P 20,000
P200,000
120,000 units
48,000 units
168,000 units
36,000 units
132,000 units
vii. Answer: C
P450,000
240,000
P690,000
225,000
P465,000
P450,000 x 0.5
Total payments for purchases in June
Deduct payments applicable to purchase of:
June
(P100,000 x 0.6)
vi. Answer: C
P520,000
140,000
660,000
130,000
P530,000
P750,000 x 0.6
P800,000 x 0.6 x 0.5
60,000
Sales for three-month period:
July
August
400,000 x 1.05
September
420,000 x 1.05
Total
400,000
420,000
441,000
1,261,000
Inventory, September 30
Total Requirements
Less July Inventory
Budgeted Production
370,440
1,631,440
300,000
1,331,440
viii.
(441,000 x 1.05 x 0.8)
Answer: C
Beginning Inventory
Required Purchases
Direct Materials Used for Production
Desired Ending Inventory
(8000 x 3.5)
28,000
8,000
(24,000)
12,000
(8000 x 3)
ix. Answer: C
P140,000
Budgeted production
Required materials per unit of product
P60,000
445
LL
622,000
0.50
MM
622,000
1.00
NN
622,000
1.2
Budgeting
Materials required
Unit cost
Peso amounts of materials used by
units produced
311,000
P0.60
622,000
P1.70
746,400
P1.00
P186,600
P1,057,400
P746,400
Budgeted sales in units
Add Finished goods, end
Total
Deduct Finished goods, beginning
Budgeted production
x. Answer: D
Required pounds by production
Ending raw materials required
Beginning raw materials
Budgeted purchases
Raw materials required by June production:
Add: Ending materials inventory
Total materials required
Deduct Beginning material inventory
Budgeted materials purchase
640,000
90,000
730,000
108,000
622,000
xii. Answer: D
Budgeted sales
Add Finished goods inventory, end
Total
Deduct Finished good inventory, beginning
Budgeted production
Raw materials required by production
(14,400 x 6  0.9)
Desired Raw materials inventory end
Total
Deduct Raw materials inventory, beginning
Budgeted purchase of raw materials
2,400 x 1.5
xiv.Answer: A
180,000
60,000
( 30,000)
210,000
300,000
10,000
290,000
Material Q required by production
290,000 x 3
Less decrease in Material Q inventory
60,000 – 80,000
Budgeted purchase in pounds, Material Q
870,000
20,000
850,000
Materials required by production
Increased in materials inventory
Purchases
2,600
1,600
4,200
1,300
2,900
xvi.Answer: B
500,000 x 2
(50,000 – 40,000)
Materials required by 2nd Quarter’s production
Add: Materials inventory, end:
Total materials required
Less: Materials inventory, beginning:
Total budget purchases in kilograms
18,000
11,400
29,400
15,000
14,400
xvii.
6,000
24,400
120,400
21,000
99,400
45,000 x 2.5 kgs.
40,000 x 2.5 x0.25
112,500 x 0.25
Cash sales (March)
0.2 x P420,000
Collections of account sales:
March sales:
(P420,000 x 0.8 x 0.7)
February sales:
(P300,000 x 0.8 x 0.25)
January sales:
(P240,000 x 0.8 x .05)
446
1,000,000
10,000
1,010,000
112,500
25.000
137,500
28,125
109,375
Answer: D
Under flexible budget, analysis should be based on actual level achieved.
Indirect labor cost per unit
(P360,000  200,000 units)
P1.80
Flexible budget allowance:
14,500 units x P1.80
P26,100
xviii. Answer: C
xiii. Answer: D
2,400
3,900
6,300
3,600
2,700
Budgeted sales
Less decrease in Finished goods inventory
Budgeted production
xv. Answer: B
xi. Answer: B
Materials required by June production 1,300 x 2
Add Ending raw materials inventory 1,600 x 2 x 0.5
Total materials required
Deduct Beginning materials inventory 1,300 x 2 x 0.5
Materials to be purchased
1,200 x 2
1,300 x 2 . 1.5
P 84,000
235,200
60,000
9,600
Budgeting
Total cash from sales
The balance of Accounts Receivable, based on the collection pattern for Liberal Sales
Company, equals 40 percent of credit sales for that month:
P1,500,000 x 0.8 x 0.4 = P480,000
P388,800
xix.Answer: B
Total cash collections
Deductions collections on September sales
Collections applicable to July and August sales
Credit sales in July: P9,000  2  0.15
(P80,000 x 0.6)
P57,000
48,000
P 9,000
P30,000
xxv.
xx. Answer: D
Collections from:
January sales
(P860,000 x 0.8 x 0.75)
December sales (January 1 Accounts)
Collections of credit sales
Cash sales
(P860,000 x 0.2)
Total cash received
P516,000
299,000
815,000
172,000
P987,000
xxii.
P8,000 x 0.7
P7,000 x 0.3
Answer: B
October 90,000 x .95
November 100,000 x .85
December 85,000 x .70
Fourth quarter sales collected in fourth quarter
xxiii. Answer: D
Cash sales
Collections from account sales:
January
December
November
Total cash receipts in January
Answer: A
The balance of Accounts Receivable as of January 31, its first month of operations, will
increase by P400,000 because the first collection on account sales will be in February.
However, a question of how much increase in Accounts Receivable in February will equal to
the difference between the February credit sales and 70% of January sales.
xxiv.
xxvii. Answer: D
P5,600
2,100
P7,700
Cost of goods sold
Deduct desired decrease in inventories
Budgeted purchases
Add decrease in Accounts Payable
Budgeted payments for purchases
P 85,500
85,000
59,500
P230,000
xxviii. Answer: A
November costs
October costs
Total disbursements
P 70,000
(P340,000 x 0.60)
(P50,000 x 30/40)
P 240,000
1,350,000
96,000
76,000
P1,762,000
xxvi.
xxi.Answer: A
Collections sales of:
June:
May:
Total collections from sales
Answer: C
Gross receivable collected month’s sales
November
2,000,000 x .12
October
1,800,000 x .75
September
1,600,000 x .06
August
1,900,000 x .04
Total credit
xxix.
204,000
37,500
20,000
P331,500
Answer: B
447
P1,680,000
70,000
P1,610,000
150,000
P1,760,000
(P1,952,000 – P288,000) x 0.75
(P1,568,000 – P288,000) x 0.25)
Answer: C
Beginning Cash
Add:Cash collected on June's sales
Cash collected on May's sales
Total P303,200
Less:Cash paid on June's purchases
Cash paid on May's purchases
Ending cash balance
P1,248,000
320,000
P1,568,000
(P300,000 x .8 x .98)
((P300,000/1.25) x .2)
235,200
48,000
(P240,000 x .6 x .99)
(P200,000 x .4)
142,560
80,000
P 20,000
283,200
222,560
P80,640
Budgeting
xxx.
Less: Beginning inventory units
Budgeted purchases in units, March
Answer: C
Budgeted sales
Add: Ending inventory (130%)
Total
Less: Beginning inventory
Budgeted purchases (units)
Unit purchase price
Budgeted peso purchases
Budgeted inventories:
December 31
January 31
February 28
March 31
xxxi.
January
11,900
14,820
26,720
15,470
11,250
200
P2,250,000
130% x 11,900
130% x 11,400
130% x 12,000
130% x 12,200
Answer: D
Payments for:
February purchases
54% x P2,436,000
January purchases
46% x P2,250,000
Total payments for purchases
Selling, general and administrative expenses:
February:
[(P3,420,000 x 0.15) – P20,000]0.54
January:
[(P3,570,000 x 0.15) – P20,000]0.46
Total cash disbursements
February
11,400
15,600
27,000
14,820
12,180
200
P2,436,000
xxxiv. Answer: A
Payments for purchases in the month of:
December
(0.2 x P120,000 x 0.6)
January
(0.2 x P160,000 x 0.4)
Total January disbursements for purchases
xxxiii. Answer: B
Budgeted March sales
Add: Ending inventory units
Total units required
P14,400
12,800
P27,200
xxxv. Answer: C
Payments for purchases:
May purchase
(0.2 x P200,000 x 0.6)
June purchase
(0.2 x P220,000 x 0.4)
Total
Labor costs
Fixed Overhead
Interest payments
Commission (0.03 x P1,020,000)
Total disbursements
15,470
14,820
15,600
15,860
P1,315,440
1,035,000
P2,350,440
P24,000
17,600
41,600
60,000
30,000
45,000
30,600
P207,200
xxxvi. Answer: C
June cash sales (P390,000 x 0.1)
Collections from account sales:
April sales
(P390,000 x 0.9 x 0.7)
May sales
(P420,000 x 0.9 x 0.3)
Total cash receipts, June
266,220
237,130
P2,853,790
P 39,000
245,700
113,400
P398,100
xxxvii. Answer: B
xxxii. Answer: A
Billings of December 31:
Collections with 3% discount
Collections end of January
Billings of November 30:
Total collections
15,600
12,260
P3,630,000 x 0.6 x 0.97
P3,630,000 x 0.25
P3,540,000 x 0.09
Marketable securities purchased on:
June
July
Cumulative purchase of MS
P2,112,660
907,500
318,600
P3,338,760
P 5,600
126,900
P132,500
xxxviii.
Answer: A
Cash Budget (P’000)
12,000
15,860
27,860
Cash receipts
Cash disbursements
448
June
P398.1
367.5
July
P404.9
278.0
Aug
P382.2
296.5
Sept
P374.9
702.5
Budgeting
Net cash inflow (outflow)
Beginning cash balance
Cumulative cash balance
M/S sold (purchased)
Cash loan
Cash balance, end
Budgeted production
30.6
25.0
55.6
- 5.6
0.0
P 50.0
126.9
50.0
176.9
- 126.9
0.0
P 50.0
85.7
50.0
135.7
- 85.7
0.0
P 50.0
( 327.6)
50.0
( 277.6)
218.2
109.4
P 50.0
xl. Answer: B
June
P351.0
P 39.0
July
P315.0
P 35.0
Aug
P378.0
P 42.0
Sept
P369.0
P 41.0
xli. Answer: B
245.7
113.4
P398.1
105.3
264.6
P404.9
94.5
245.7
P382.2
113.4
220.5
P374.9
June
P210.0
P 99.0
110.0
209.0
58.5
10.0
35.0
25.0
30.0
July
P240.0
P 94.5
121.0
215.5
52.5
10.0
Aug
P320.0
P108.0
115.5
223.5
63.0
10.0
Sept
P230.0
P144.0
132.0
276.0
61.5
10.0
35.0
P367.5
P278.0
Budgeted Collections on Accounts Receivable
January
November sales
87,500
December sales
116,250
January sales
February sales
Total
203,750
Cash Payments (P’000)
Purchases
First month (45%)
Second month (55%)
Total purchases paid
Labor
General overhead
Interest
Cash dividend
Taxes
Purchase of equipt.
Total payments
P296.5
Sales
Inventory, end
Total
Inventory, beg.
February
116,250
131,750
248,000
March
131,750
93,000
224,750
5,900,000
P 93,600
84,000
120,000
P297,600
Total
87,500
232,500
263,500
93,000
676,500
Answer: C
A month’s sales is collected 50 percent each in the first and second month. Therefore, the
accounts receivable outstanding as of March 31 includes March’s sales as well as 50 percent
of February sales.
February’s accounts (P186,000 x 0.5)
P 93,000
March’s sales
217,000
Outstanding accounts receivable, March 31
P310,000
xliii.
30.0
290.0
P702.5
Budgeted Production
February
1,200,000
3,400,000
4,600,000
(2,600,000
2,500,000
xlii.
xxxix. Answer: A
January
1,700,000
2,600,000
4,300,000
(2,900,000
2,000,000
Payments for Purchases:
January
(December purchases - 1,800,000 x 0.052)
February
(January purchases – 1,400,000 x 0.06)
March
(February purchases – 2,000,000 x 0.06)
Total for the quarter
Cash Receipts (P’000)
Account sales (90%)
Cash sales
Collection of accounts
First month (30%)
Second month (70%)
Total
1,400,000
March
Total
1,400,000 4,300,000
4,500,000 4,500,000
5,900,000 8,800,000
(3,400,000 (2,900,000
Answer: A
Current unit cost per 1,000
Material
Labor
Overhead
Total
P 52
20
10
P 82
Effective January 1, 2007, the price of materials will be raised to P60. The unit cost for 2007
production will be P90. Since the sales of January and February come from December
production, only the March sales will have cost of P90 per thousand.
January and February cost of goods sold
449
(1,700 + 1,200) x P82
P237,800
Budgeting
March
Cost of goods sold (first quarter)
xliv.
1,400 x P90
126,000
P363,800
January
203,750
February
248,000
March
224,750
93,600
28,000
14,000
52,700
84,000
40,000
20,000
37,200
.
188,300
15,450
30,000
45,450
20,450
20,450
0
25,000
.
181,200
66,800
25,000
91,800
66,800
87,250
0
112,250
120,000
50,000
25,000
43,400
8,000
64,560
48,420
359,380
(134,630)
25,000
(109,630)
( 87,250)
Billed 8/20
P350,000 x 18%
Billed 9/10
P350,000 x 80% x 98%
Collections in Sept of Aug sales
Answer: A
Cash collections
Cash disbursements
Payments for materials
Labor expenses
Overhead
Selling & administrative
Interest
Taxes
Dividends
Total disbursements
Net Cash Inflow (Outflow)
Cash Balance, Beginning
Cumulative cash balance
Marketable securities
Cumulative MS
Borrowings
Cash Balance, End
P 63,000
274,400
P337,400
xlvii. Answer: B
Russon provides 25 percent of next month’s quantity sales.
25% x P400,000 x 80% = P80,000
xlviii. Answer: D
May sales billed June 10 250,000x18%
June Sales:
Billed June 20
300,000 x 18%
Billed July 10
300,000 x .80 z .98
July sales
Billed July 20
P350,000 x .80 x .98
July Collections
P 45,000
54,000
235,200
P274,400
P608,600
47,380
25,000
xlv.Answer: C
Proforma Income Statement
Sales
Cost of goods sold
Gross profit
Selling expenses, 20%
Operating income
Interest expense
Income before tax
Income tax, 40%
Net income
xlvi.
January
263,500
139,400
124,100
52,700
71,400
2,667
68,733
27,493
41,240
February
186,000
98,400
87,600
37,200
50,400
2,667
47,733
19,093
28,640
March
217,000
126,000
91,000
43,400
47,600
2,666
44,934
17,974
26,960
Total
666,500
363,800
302,700
133,300
169,400
8,000
161,400
64,560
96,840
CHAPTER 6:
OPERATIONAL AND FINANCIAL BUDGETING
Multiple Choice
a
Answer: A
August sales
450
1. The starting point in preparing a comprehensive budget is
a. the sales forecast.
b. the cash budget.
c. the budgeted income statement.
Budgeting
a.
b.
c.
d.
d. the flexible expense budget.
d
2. Budgets are related to which of the following management
functions?
a. Planning.
b. Control.
c. Performance evaluation.
d. All of the above.
d
3. Which of the following should be used to forecast sales?
a. Regression analysis.
b. The scatter diagram.
c. The judgment of the most experienced managers.
d. Whatever method produces the most accurate forecast.
a
4. A critical factor for using indicator methods to forecast
sales is
a. the availability of a forecasted value for the
indicator.
b. an upward trend in the value of the indicator.
c. governmental collection of data for computing and
reporting the value of the indicator.
d. the availability of an indicator that covers the entire
country.
Costs
Costs
Costs
Costs
of
of
of
of
the
the
the
the
production department.
general accounting department.
product shipping department.
material receiving department.
d
8. Budgets set at very high levels of performance (i.e., very
low costs)
a. assist in planning the operations of the company.
b. stimulate people to perform better than they ordinarily
would.
c. are helpful in evaluating the performance of managers.
d. can lead to low levels of performance.
c
9. Inventory policy is most critical in the budgeting of
a. sales.
b. cost of goods sold.
c. purchases.
d. expenses.
a 10. Budgeting expenditures by purpose is called
a. program budgeting.
b. zero-based budgeting.
c. line budgeting.
d. flexible budgeting.
d
5. Which of the following equations can be used to budget
purchases? (BI = beginning inventory, EI = ending
inventory desired, CGS = budgeted cost of goods sold)
a. Budgeted purchases = CGS + BI - EI
b. Budgeted purchases = CGS + BI
c. Budgeted purchases = CGS + EI + BI
d. Budgeted purchases = CGS + EI – BI
b
6. A flexible budget is
a. one that can be changed whenever a manager so desires.
b. adjusted to reflect expected costs at the actual level
of activity.
c. one that uses the formula total cost = cost per unit x
units produced.
d. the same as a continuous budget.
c 11. Which of the following is a difference between a static
budget and a flexible budget?
a. A flexible budget includes only variable costs, a static
budget includes only fixed costs.
b. A flexible budget includes all costs, a static budget
includes only fixed costs.
c. A flexible budget gives different allowances for
different levels of activity; a static budget does not.
d. None of the above.
b
7. The use of flexible (as opposed to static) budget
allowances is LEAST important for which of the following?
a 12. A static budget is most appropriate for a department
451
Budgeting
a.
b.
c.
d.
with
with
with
with
a.
b.
c.
d.
only fixed costs.
only variable costs.
mostly mixed costs.
any of the above characteristics.
a 18. If cash receipts from customers are greater than sales,
which of the following is most likely to be true?
a. The balance of accounts receivable will decrease.
b. The company's outstanding debt will decrease.
c. The company's cash balance will increase.
d. The company will show a profit.
d 13. Which of the following is NOT an advantage of budgeting?
a. It requires managers to state their objectives.
b. It facilitates control by permitting comparisons of
budgeted and actual results.
c. It facilitates performance evaluation by permitting
comparisons of budgeted and actual results.
d. It provides a check-up device that allows managers to
keep close tabs on their subordinates.
b 14. An
a.
b.
c.
d.
use static budget allowances for manufacturing costs.
prepare production budgets without a sales forecast.
budget unit production equal to budgeted unit sales.
experience budget variances.
c 19. A cash budget is NOT prepared until a company has
a. obtained a commitment from its bank that cash will be
available as needed.
b. prepared the pro forma balance sheet.
c. prepared its purchases budget.
d. determined that enough cash is available to meet
dividend payments.
imposed budget
is the same as a static budget.
can lead to poor performance.
is best for planning purposes.
eliminates the need for a sales forecast.
a 20. Which of the following is LEAST likely to be affected if
unit sales for this month are lower than budgeted?
a. Production for this month.
b. Production for next month.
c. Cash receipts for next month.
d. Inventory at the end of this month.
b 15. Prohibiting managers from overspending budget allowances
a. improves company performance.
b. can harm company performance.
c. eliminates the need for comparisons of budgeted and
actual amounts.
d. usually reduces the need to prepare a cash budget.
b 21. "Incremental budgeting" refers to
a. line-by-line approval of expenditures.
b. setting budget allowances based on prior year
expenditures.
c. requiring top management approval of increases in
budgets.
d. using incremental revenues and costs in budgeting.
b 16. Which of the following will occur if X Co.'s actual sales
in May are lower than its budgeted sales for that month?
a. X won't have enough cash to cover bills requiring
payment in May.
b. X's actual inventory at the end of May will be higher
than budgeted.
c. X's actual purchases in June will be higher than
budgeted.
d. All of the above.
b 22. The principal DISADVANTAGE of line budgeting is
a. it can only be used by not-for-profit entities.
b. it limits the flexibility of managers to accomplish the
entity's objectives.
c. it works only in conjunction with zero-based budgeting.
c 17. JIT manufacturers are more likely than conventional
manufacturers to
452
Budgeting
d. experience cash shortages.
d. none of the above.
c 29. Quorum Company desires an ending inventory of $120,000. It
expects sales of $240,000 and has a beginning inventory of
$80,000. Cost of sales is 60% of sales. Budgeted purchases
are
a. $120,000.
b. $144,000.
c. $184,000.
d. $264,000.
a 23. The cash receipts budget
a. requires a sales forecast.
b. requires a purchases or production budget.
c. is prepared after the cash disbursements budget.
d. has none of the above characteristics.
c 24. The type of company most likely to run short of cash during
the year is one with
a. little seasonality.
b. high contribution margin percentage.
c. high seasonality and rapid sales growth.
d. relatively low fixed costs.
d 25. If
a.
b.
c.
d.
d 30. Garamond Company budgeted purchases of $200,000. Cost of
sales was $240,000 and the desired ending inventory was
$84,000. The beginning inventory was
a. $40,000.
b. $64,000.
c. $84,000.
d. $124,000.
a company is earning a profit,
its cash balance is increasing.
its monthly cash disbursements will be stable.
its inventory is increasing.
it might have to borrow money.
a 31. Wildwood Company budgeted purchases of 20,000 units. The
budgeted beginning inventory was 4,800 units and the
budgeted ending inventory was 6,000 units. Budgeted sales
were
a. 18,800 units.
b. 21,200 units.
c. 24,800 units.
d. 26,000 units.
a 26. One difference between budgeting in for-profit and not-forprofit entities is that not-for-profit entities usually
a. budget expenses before revenues.
b. don't need a cash budget.
c. are less likely to use incremental budgeting.
d. use computer software-packages to facilitate the
budgeting process.
d 27. To prepare its cash disbursements budget, a company uses
information from
a. its balance sheet at the end of the prior period.
b. its purchases budget.
c. its capital budget.
d. all of the above sources.
c 32. Menomonie Company budgeted sales of 18,000 units. The
budgeted beginning inventory was 3,000 units and the
budgeted ending inventory was 5,000 units. Budgeted
production is
a. 23,000 units.
b. 21,000 units.
c. 20,000 units.
d. 16,000 units.
b 28. Just-in-time manufacturers are more likely than
conventional manufacturers to
a. prepare production budgets without a sales forecast.
b. budget materials purchases equal to the current month's
needs for production.
c. budget unit production for the month at greater than
budgeted unit sales for the month.
d 33. Baker Company budgets supplies as $20,000 + ($1.20 x direct
labor hours). Baker has budgeted 18,000 direct labor hours,
$130,000 direct labor cost. The flexible budget allowance
for supplies is
a. $18,000.
b. $20,000.
453
Budgeting
b. 52,000 units.
c. 55,000 units.
d. 74,000 units.
c. $150,000.
d. some other number.
b 34. Equinox Company budgeted sales of 44,000 units for January,
60,000 for February. The budgeted beginning inventory for
January 1 was 14,000 units. Equinox desires an ending
inventory equal to one-half of the following month's sales
needs. Budgeted production for January is
a. 74,000 units.
b. 60,000 units.
c. 52,000 units.
d. 28,000 units.
c 38. Chetek Company budgeted purchases of 19,000 units. The
budgeted beginning inventory was 12,400 units and the
budgeted ending inventory was 13,000 units. Budgeted sales
were
a. 32,000 units.
b. 31,400 units.
c. 18,400 units.
d. 19,600 units.
d 39. Barron Company manufactures a single product. Barron keeps
inventory of raw materials at 50% of the coming month's
budgeted production needs. Each unit of product requires
three pounds of materials. The production budget is, in
units: May, 1,000; June, 1,200; July, 1,300; August, 1,600.
Raw material purchases in July would be
a. 1,450 pounds.
b. 2,400 pounds.
c. 3,900 pounds.
d. some other number.
c 35. Sams Company manufactures a single product. It keeps its
inventory of finished goods at 75% the coming month's
budgeted sales, inventory of raw materials at 50% of the
coming month's budgeted production needs. Each unit of
product requires two pounds of materials. The production
budget is, in units: May, 1,000; June, 1,200; July, 1,300;
August, 1,600. Raw material purchases in June would be
a. 1,525 pounds.
b. 2,550 pounds.
c. 2,800 pounds.
d. 3,050 pounds.
a 36. Hayward Company desires an ending inventory of $70,000. It
expects sales of $400,000 and has a beginning inventory of
$65,000. Cost of sales is 65% of sales. Budgeted purchases
are
a. $265,000.
b. $395,000.
c. $405,000.
d. $535,000.
c 40. Acker Company has prepared the following flexible budget
for production costs: total production costs = $260,000 +
$5X, where X is the number of machine hours. Acker
produced 20,000 units, using 34,000 machine hours at a
total cost of $425,000. The flexible budget allowance for
production costs is
a. $260,000.
b. $425,000.
c. $430,000.
d. $525,000.
c 37. Bryce Company budgeted sales of 50,000 units for January,
60,000 for February. Bryce Company desires an ending
inventory equal to one-half of the following month's sales
needs. Inventory on January 1 was as desired. Budgeted
production for January is
a. 22,000 units.
c 41. Scooter Inc. has projected sales to be $130,000 in June,
$135,000 in July and $150,000 in August. Scooter collects
30% of a month's sales in the month of sale, 50% in the
month following the sale, and 16% in the second month
following the sale. Cash collections in August would be
a. $ 45,000.
454
Budgeting
c. $144,000.
d. $186,000.
b. $127,300.
c. $133,300.
d. $138,500.
d 42. Rundall Co. makes payments for purchases 30% during the
month of purchase and the remainder the following month.
April purchases are projected to be $160,000; May purchases
will be $240,000. Cash payments in May will be
a. $ 72,000.
b. $108,000.
c. $168,000.
d. $184,000.
c 46. Andover Inc. has projected sales to be: February, $10,000;
March, $9,000; April, $8,000; May, $10,000; and June,
$11,000. Andover has 30% cash sales and 70% sales on
account. Accounts are collected 40% in the month following
the sale and 55% collected the second month. Total cash
receipts in May would be
a. $3,000.
b. $8,150.
c. $8,705.
d. some other number.
c 43. Randall Co. makes payments for purchases 30% during the
month of purchase and the remainder the following month.
April purchases are projected to be $80,000; May purchases
will be $120,000. The accounts payable balance on May 31
will be
a. $36,000.
b. $54,000.
c. $84,000.
d. $92,000.
d 47. Conde Inc. has projected sales to be: February, $20,000;
March, $18,000; April, $16,000; May, $20,000; and June,
$22,000. Conde has 30% cash sales and 70% sales on account.
Accounts are collected 40% in the month following the sale
and 60% collected the second month. Accounts receivable for
May 31 would be
a. $ 6,160.
b. $13,300.
c. $14,000.
d. $20,720.
d 48. Holmgren estimates its supplies purchases to be $21,000 in
August and $28,000 in September. Holmgren pays 70% of its
accounts in the month of purchase with the remainder paid
the following month. September payments would be
a. $14,700.
b. $19,600.
c. $23,100.
d. $55,900.
c 44. Alfuth Co. makes payments for purchases 10% during the
month of purchase, 60% in the following month, and the
remainder in the second month following the purchase.
Purchases are projected to be $260,000 in January, $280,000
in February, and $320,000 in March. March payments will be
a. $ 32,000.
b. $168,000.
c. $278,000.
d. some other number.
c 49. Danner Inc. has projected sales to be $100,000 in June,
$90,000 in July, and $70,000 in August. Danner collects 50%
of a month's sales in the month of sale, 30% in the month
following the sale, and 16% in the second month following
the sale. Cash collections in August would be
a. $35,000.
b. $62,000.
c. $78,000.
d. $86,000.
d 45. Reid Co. makes payments for purchases 10% during the month
of purchase, 60% in the following month, and the remainder
in the second month following the purchase. Purchases are
projected to be $130,000 in January, $140,000 in February,
and $160,000 in March. The March 31 accounts payable
balance will be
a. $48,000.
b. $96,000.
455
Budgeting
a 50. Clearwater Inc. has projected sales to be $160,000 in
April, $200,000 in May, and $240,000 in June. Clearwater
collects 40% of a month's sales in the month of sale, 40%
in the month following the sale, and 20% in the second
month following the sale. The accounts receivable balance
on June 30 would be
a. $184,000.
b. $144,000.
c. $ 40,000.
d. some other number.
T 10. Line-by-line budget authorization is common in governmental
units.
Problems
1. Ballan Inc. estimates its units sales for the coming months to
be as follows:
March
April
May
June
July
August
True-False
F
1. A just-in-time manufacturer does NOT need a sales budget.
T
2. A flexible budget allowance is NOT especially useful for
budgeting discretionary costs.
F
4. The longer the time period covered by a budget, the more
useful the budget will be for controlling operations.
F
5. A purchases budget is normally prepared after the company
has forecast how much cash it will have available to pay
for purchases.
F
6. Imposed budgets are exceptionally ambitious goals not
likely to be achieved without making fundamental changes in
the way a job is done.
F
7. A JIT manufacturer that maintains no inventory doesn't need
a cash disbursements budget.
F
F
Ballan maintains inventory at budgeted sales needs for the
next month. March 1 inventory will be 248,000 units.
3. The purchases budget is prepared before the sales budget
because the company cannot estimate what it will sell until
it has some idea of what will be on hand.
F
280,000
260,000
250,000
230,000
240,000
225,000
a. Prepare a monthly purchasing schedule for March through
July.
SOLUTION:
8. The budget for a retailer is likely to be more complex than
that for a manufacturer because a retailer has a wider
variety of customers.
9. The increasing public demand for accountability from
governmental and other not-for-profit organizations has
resulted in an increased use of incremental budgeting.
a. March purchases:
248,000]
292,000 units
[280,000 + 260,000 –
April purchases:
260,000]
250,000 units
[260,000 + 250,000 –
May purchases:
250,000]
230,000 units
[250,000 + 230,000 –
June purchases:
230,000]
240,000 units
[230,000 + 240,000 –
July purchases:
240,000]
225,000 units
[240,000 + 225,000 –
2. Superior Company manufactures a single product.
456
It keeps its
Budgeting
========
inventory of finished goods at twice the coming month's
budgeted sales and inventory of raw materials at 150% of the
coming month's budgeted production. Each unit of product
requires five pounds of materials, which cost $3 per pound.
The sales budget is, in units: May, 10,000; June, 12,400;
July, 12,600; August, 13,200.
3. Ironwood sells a single product for $10. The purchase cost is
$4 per unit and Ironwood pays a 20% sales commission. Fixed
costs are $45,000 per month including $12,000 depreciation,
and the company maintains inventory equal to budgeted sales
needs for the following month. The following budgeted data
are available.
a. Compute budgeted production for June.
b. Compute budgeted production for July.
Inventory on hand, February 1
Budgeted sales - February
- March
- April
c. Compute budgeted material purchases for June in pounds and
dollars.
28,000
24,000
26,000
25,000
units
units
units
units
a. Compute total budgeted income for February and March.
b. Find budgeted inventory at March 31 in units and dollars.
c. Find budgeted purchases for March in units and dollars.
SOLUTION:
SOLUTION:
a. June production: 12,800 units
12,400)]
[12,400 + (2 x 12,600) - (2 x
b. July production: 13,800 units
12,600)]
[12,600 + (2 x 13,200) - (2 x
c. June materials purchases:
Total
Less beginning inventory (5 lbs. x 12,800 x 150%)
Equals dollar purchases
$110,000
Sales [(24,000 + 26,000) x $10]
Cost of sales (50,000 x $4)
$500,000
200,000
------$300,000
100,000
------$200,000
90,000
------$110,000
========
Gross profit
Commissions at 20%
71,500 pounds; $214,500
Used in production (5 lbs. x 12,800)
lbs.
Ending inventory (5 lbs. x 13,800 x 150%)
Purchases
Times cost per pound
a. Budgeted income:
Contribution margin
Fixed costs (2 x 45,000)
64,000
Income
103,500
------167,500
96,000
------71,500
$3
------$214,500
b. Budgeted inventory:
25,000 units;
$100,000
c. Budgeted purchases: 25,000 units; $100,000
457
($4 x 25,000)
Budgeting
Cost of sales
Ending inventory
26,000 units
25,000
-----51,000
26,000
-----25,000 units x $4
======
Total required
Less beginning inventory
Purchases
inventory at 75% of budgeted sales needs for the next month.
Acme began June with $150,000 in inventory.
$104,000
100,000
-------$204,000
104,000
-------$100,000
========
a. Prepare a monthly purchasing schedule (in $) for as many
months as is possible.
SOLUTION:
a.
4. Westrum estimates production overhead costs equal to $300,000
+ $2X, where X is the number of machine hours used. Westrum
budgeted 40,000 machine hours for 20X4. Westrum produced
23,000 units in 20X4, each requiring 3 machine hours. Actual
production costs were $420,000.
October
Sales
$240,000
x 40%
x .40
a. Calculate the flexible budget allowance for production
overhead costs for 20X4.
-------Cost of Sales
$ 96,000
+ Ending Inv
60,000
- Beg Inv
(72,000)
b. Find the amount and direction of the budget variance for
20X4 for production overhead. (favorable
unfavorable)
Circle one answer.
-------Purchases
$ 84,000
SOLUTION:
a. Flexible budget allowance,
x $2)]
b. Budget variance:
$438,000
$18,000 favorable
[$300,000 + (23,000 x 3
June
July
August
September
$340,000
$360,000
$300,000
$260,000
x .40
x .40
x .40
x .40
--------
--------
--------
--------
$136,000
$144,000
$120,000
$104,000
108,000
90,000
78,000
72,000
(150,000)
(108,000)
(90,000)
(78,000)
--------
--------
--------
--------
$ 94,000
$126,000
$108,000
$ 98,000
========
========
========
========
========
($438,000 - $420,000)
6. Bay City estimates production overhead costs equal to $200,000
+ $4X + $7Y, where X is the number of direct labor hours used
and Y is the number of machine hours used. Bay City budgeted
20,000 direct labor hours and 50,000 machine hours for 20X2.
Bay City produced 30,000 units in 20X2, each requiring 1
direct labor hour and 2.5 machine hours. Actual production
costs were $890,000.
5. Acme Inc. estimates its dollar sales for the coming months to
be as follows.
June
$340,000
July
360,000
August
300,000
September 260,000
October
240,000
November
200,000
a. Calculate the flexible budget allowance for production
overhead costs for 20X2.
b. Find the amount and direction of the budget variance for
Acme has an average gross margin of 40% of sales and maintains
458
Budgeting
20X2 for production overhead.
Circle one answer.
(favorable
suppliers and fixed costs. Compute the budgeted cash
balance at the end of March.
unfavorable)
SOLUTION:
SOLUTION:
a. Flexible budget allowance, $845,000
x $4) + (30,000 x 2.5 x 7)]
b. Budget variance:
$45,000 unfavorable
a. March receipts:
40%)]
[$200,000 + (30,000 x 1
[($240,000 x 60%) + ($300,000 x
b. Receivables at end of March:
40%)]
($845,000 - $890,000)
$180,000
c. Inventory at end of February:
7. Webster Company has the following sales budget.
January
February
March
April
$264,000
d. February purchases:
x 2 x 70%)
$200,000
$240,000
$300,000
$360,000
e. March payments:
80%)]
Cost of sales is 70% of sales. Sales are collected 40% in the
month of sale and 60% in the following month. Webster keeps
inventory equal to double the coming month's budgeted sales
requirements. It pays for purchases 80% in the month of
purchase and 20% in the month after purchase. Inventory at
the beginning of January is $190,000.
Webster has monthly
fixed costs of $30,000 including $6,000 depreciation. Fixed
costs requiring cash are paid as incurred.
$420,000
$252,000
$282,400
f. AP at end of February:
g. Cash at end of March:
- $24,000)
[$300,000 x (100% ($300,000 x 70% x 2)
[($240,000 x 70%) + ($300,000
- ($240,000 x 2 x 70%)]
[(252,000 x 20%) + ($290,000 x
$50,400
$2,600
($252,000 x 20%)
($25,000 + $264,000 - $282,400
8. Weasel Company has the following sales projections for 20X3:
a. Compute budgeted cash receipts in March.
January
February
March
April
May
June
b. Compute budgeted accounts receivable at the end of March.
c. Compute budgeted inventory at the end of February.
d. Compute budgeted purchases in February.
$200,000
210,000
225,000
230,000
245,000
240,000
Weasel collects 40% of its sales in the month of sale, 45% in
the month following the sale and 13% in the second month
following the sale. Records show that sales were $225,000 in
November and $208,000 in December 20X2.
e. March purchases are $290,000. Compute budgeted cash
payments in March to suppliers of goods.
f. Compute budgeted accounts payable for goods at the end of
February.
a. Prepare a schedule of cash receipts for the first three
months of 20X3.
g. Cash at the end of February is $45,000. Cash disbursements
are not required for anything other than payments to
459
Budgeting
requirements. It pays for purchases 40% in the month of
purchase and 60% in the month after purchase. Accounts Payable
is $94,800 on March 1.
b. What would be the accounts receivable (net of bad debts)
balance on March 31, 20X3?
SOLUTION:
a. January collections: (13% x 225,000)
(45% x 208,000)
(40% x 200,000)
b.
=
=
=
February collections: (13% x 208,000) =
(45% x 200,000) =
(40% x 210,000) =
$27,040
90,000
84,000
------$201,040
========
March collections:
$26,000
94,500
90,000
------$210,500
========
$157,800
(13% x 200,000) =
(45% x 210,000) =
(40% x 225,000) =
a. Prepare a monthly purchasing schedule for March through
May.
$29,250
93,600
80,000
------$202,850
========
b. Prepare a monthly cash payment schedule for March through
May.
c. Compute the accounts payable balance as of May 31.
SOLUTION:
a.
$ 27,300 = February sales 210,000 x 13%
$130,500 = March sales 225,000 x (45% +
13%)
-------$157,800
========
Cost of Sales
+ Ending Inv
- Beg Inv
Purchases
9. Bismarck has the following sales budget:
March
April
May
June
March
$300,000
x .55
-------$165,000
42,900
(41,250)
-------$166,650
========
Sales
x 55%
$300,000
$312,000
$320,000
$348,000
b. March payments:
Cost of sales is 55% of sales. Bismarck keeps an inventory
equal to one-fourth the coming month's budgeted sales
460
April
$312,000
x .55
-------$171,600
44,000
(42,900)
-------$172,700
========
(40% x 166,650) =
Mar 1 Acct Pay =
May
$320,000
x .55
-------$176,000
51,975
(44,000)
-------$183,975
========
$ 66,660
94,800
------$161,460
========
Budgeting
April payments:
May payments:
(40% x 172,700) =
(60% x 166,650) =
$ 69,080
99,990
------$169,070
========
(40% x 183,975) =
(60% x 172,700) =
$ 73,590
103,620
------$177,210
========
c. Accounts Payable, May 31: $110,385
SOLUTION:
a. January collections: (24% x 160,000) =
(45% x 168,000) =
(30% x 160,000) =
$38,400
75,600
48,000
------$162,000
========
February collections: (24% x 168,000) = $40,320
(45% x 160,000) = 72,000
(30% x 168,000) = 50,400
------$162,720
========
[60% x $183,975]
10. Hicks Company has the following sales projections for 20X4:
March collections:
January $160,000
February 168,000
March
April
175,000
180,000
May
June
195,000
190,000
Hicks collects 30% of its sales in the month of sale, 45% in
the month following the sale, and 24% in the second month
following the sale. Records show that sales were $160,000 in
November and $168,000 in December 20X3.
b.
$161,070
(24% x 160,000) = $38,400
(45% x 168,000) = 75,600
(30% x 175,000) = 52,500
------$166,500
========
$40,320 = February sales (168,000 x 24%)
120,750 = March sales [175,000 x (45% +
24%)]
a. Prepare a schedule of cash receipts for the first three
months of 20X4.
------$161,070
b. What would be the accounts receivable balance (net of bad
debts) on March 31, 20X4?
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