FINANCIAL PLANNING AND BUDGET
Management Accounting Review
/RCROQUE
Financial planning is the process of:
•
•
•
•
Analyzing the investment and financing alternatives available to a firm.
Forecasting the future consequences of the alternatives.
Deciding which alternatives to undertake.
Measuring subsequent performance against established goal.
Financial planning must be tied to the strategic plans of top management. Good financial planning can help
managers ensure that their financing strategies are consistent with their capital budgets. It also highlights the
investing and financing decisions necessary to support management’s strategic plans
Management often uses a financial planning model to help assess the consequences of alternative operating and
financial strategies. Such models range from those that are fairly simple to those that incorporate hundreds of
variables and equations, using specialized software. The input to the models generally consists of current financial
statements and expectations about future conditions.
In developing the financial plan, management generally will prepare a series of pro forma financial statements,
one of which will represent the forecast. The forecast depicts the firm’s most likely future financial results.
However, effective financial planning generally requires the development of a series of possible scenarios to allow
management to plan for various contingencies. Sensitivity analysis may be used with the model to explore the
effects of changes in significant variables on the firm’s performance. In addition, financial planning can be used
to explore the implications of the various decision alternatives
FINANCIAL PLANNING MODEL
INPUTS
• Current financial statements
• Assumption about future conditions
OUTPUTS
Planning Model
• Project financial statements(proformas)
• Operational financial budgets
• Scenario analysis
BUDGET- a plan expressed in quantitative terms, on how to acquire and use the resources of an
entity during a budget period a certain future period of time.
To be most effective, the firm’s budget should be an integral part of the strategic plan. It must reflect
management’s objectives and plans. A master budget summarizes the results of all of the firm’s individual budgets
into a set of projected financial statements and schedules. Specifically, the master budget summarizes the results
of the following two major budgets:
1. The operating budget — The budgeted income statement and supporting schedules.
2. The financial budget — The capital budget, cash budget, and the budgeted balance sheet, and statement of
cash flows.
USES/ ADVANTAGES OF BUDGETING
1. It compels periodic planning.
Strategic Budgeting- a form of long-range planning based on identifying and specifying organizational
goals and objectives
2. It enhances cooperation, coordination, and communication.
3. It forces quantification of plans and proposals.
4. It provides a framework for performance evaluation.
5. It enables members of the organization to be aware of business costs.
6. It satisfies some legal and contractual requirements.
7. It directs the activities toward the achievement of organizational goals.
LIMITATIONS OF BUDGETING
1. Since budgeting means planning for the future, the plan itself, as well as the figures therein, are merely
estimates, requiring a certain amount of judgement
2. To be successful, a budgetary system requires the cooperation and participation of all members of the
organization.
3. Some managers think that budget restricts their investments and limits their decision-making power, making
it difficult to sell the idea of budgeting to some people in the organization.
4. The development and installation of a good budgetary system may be time-consuming and too costly for some
organizations, such that the benefits that can be derived from budgeting may be outweighed by its costs.
Budgets are prepared for some set period of time, usually one year. However, some budgets must be broken
down into shorter time frames. For example, a cash budget is usually prepared monthly to allow management to
plan for the firm’s cash needs. Many firms use rolling budgets which are continually updated as time passes. As
an example, a 12-month rolling budget adds a future month and drops the current month as it ends.
Budgets may be constructed in a number of ways:
a. Top-down mandated approach — Upper-level management establishes the budget parameters and it is
passed down through the organization to each operating unit.
(1) Advantages include quick preparation time and clear communication of management’s objectives.
(2) Disadvantage is that lower-level management and employees may view it to be dictatorial and not
fully embrace and accept the budget.
b. Participative (bottom-up) is driven by involving lower-level management and employees.
(1) Advantages are that employees may more readily accept the budget, morale may be improved, and
budget input is provided by a larger number of individuals.
(2) Disadvantages are that the process is time-consuming, and managers may try to pad their budgets.
c.
Many budgets are prepared using a blended approach that combines aspects of the top-down and bottomup methods.
A budget displays a plan of action for future operations. The most important functions of a budget are to
coordinate the various functional activities of the firm and to provide a basis for control of the activities. Budgets
may be prepared for all elements of the value chain, which includes research and development, design, production,
marketing, distribution, customer service, and administration. The budgets process begins with an estimate of
sales and then proceeds systematically as outlined below:
a.
b.
c.
d.
Develop a sales forecast.
Develop a production schedule to calculate production costs and costs of goods sold.
Estimate other expenses and revenues.
Complete the pro forma financial statements and budgets.
THE BUDGET COMMITTEE- usually composed of the sales manager, production manager, chief engineer,
treasurer, and controller.
THE BUDGET COMMITTEE’S PRINCIPAL FUNCTIONS:
1. Formulate and decide on general policies relating to the firm’s budgetary system.
2. Request, review, and revise (if necessary) individual budget estimates from the different segments of the
organization.
3. Approve budgets and subsequent revisions therein.
4. Receive, evaluate, and analyze budget reports.
5. Recommend necessary actions to improve operational efficiency and effectiveness.
Master Budget- represents the overall plan of the organization for a given budget period. It consists of all the
individual budgets for each of the segment of the organization aggregated or consolidated into one overall budget
for the entire firm.
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•
•
•
•
•
•
•
Budget Report- compares actual performance with budgeted performance.
Continuous (Rolling) Budget- one that is revised on a regular (continuous) basis; typically, the budget is
extended for another month or quarter in accordance with new data as the current month or quarter
ends.
Fixed (Static) Budget- based on only one level of activity or production
Flexible (Variable, Dynamic) Budget- a series of budgets prepared for many levels of activity.
Zero-base Budgeting (ZBB)- a budget and planning process in which each manager must justify a
department’s
entire
budget
from
a
base
of
zero
every
period;
all
expenditures must be justified regardless of the variance form the previous periods; the objective is to
encourage periodic re-examination of all costs in the hope that some can be reduced or eliminated.
Life-cycle Budget- estimates a product’s revenues and expenses over its entire life cycle beginning with
research and development, proceeding through the introduction and growth stages, into the maturity
stage, and finally, into the harvest or decline stage.
VALUE CHAIN: R & D- design – production – marketing – customer service.
Activity-based Budgeting- applies activity-based costing principles to budgeting
Kaizen Budgeting- assumes the continuous improvement of products and processes, usually by way of
many small innovations rather than major changes; it incorporates expectations for continuous
improvement into budgetary estimates.
Test 1. TRUE OR FALSE QUESTIONS.
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2.
3.
4.
5.
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________ 30.
The master budget consists of operating and financial budgets.
The budget itself and the administration of the budget are entirely accounting responsibilities.
A benefit of budgeting is that it provides definite objectives for evaluating performance.
Regardless of size, the budgeting process is a very formal process in all organizations.
The budget manual is prepared to communicate budget procedures and deadlines to
employees throughout an organization.
Effective internal control procedures requires that the budget director be an individual other
than the controller.
A budget can facilitate the coordination of activities among the segments of a large company.
A budget committee helps provide consistency in the budgeting process because it prepares
all of the budgets for the various segments of the organization.
The budget director is often the organization's controller.
The budget director has the responsibility of specifying the process by which budget data will
be gathered.
The most-widely accepted budget by the organization is the one prepared by top management.
A just-in-time (JIT) manufacturer does not need a sales budget.
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.
Effective budgeting requires clearly defined lines of authority and responsibility.
The longer the time period covered by a budget, the more useful the budget will be for
controlling operations.
A purchases budget is normally prepared after the company has forecast how much cash it
will have available to pay for purchases.
A just-in-time (JIT) manufacturer that maintains no inventory does not need a cash
disbursements budget.
The usual starting point in budgeting is to make a forecast of net income.
The starting point when budgeting for a not-for-profit organization is generally to budget
expenditures first.
The manufacturing overhead budget is prepared after the sales budget.
The cash budget should be prepared before the budgeted income statement.
The budgeted income statement, budgeted balance sheet, and budgeted statement of cash
flows comprise the final portion of the master budget.
Control involves developing objectives and preparing the various budgets to achieve those
objectives.
Cash collections in a schedule of cash collections typically consist of collections on sales made
to customers in prior periods plus collections on sales made in the current budget period.
In a production budget, if the number of units in finished goods inventory at the end of the
period is less than the number of units in finished goods inventory at the beginning of the
period, then the expected number of units sold is greater than the number of units to be
produced during the period.
The direct materials budget must be completed before the production budget because the
quantity of materials available for production must be known.
In a merchandising company, the required merchandise purchases for a period are determined
by subtracting the units in beginning inventory from the sum of the units to be sold during the
period and the desired ending inventory.
The direct materials to be purchased for a period can be obtained by adding the desired ending
inventory of direct materials and the total direct materials needed for the period.
In the manufacturing overhead budget, the non-cash charges (such as depreciation) are
deducted from the total budgeted manufacturing overhead to determine the expected cash
disbursements for manufacturing overhead.
The disbursements section of a cash budget consists of all cash payments for the period except
cash payments for dividends.
Test 2. MULTIPLE CHOICE QUESTIONS.
1.
The usual starting point for a master budget is the
A. Direct materials purchase budget.
B. Budgeted income statement.
2.
Which of the following statements concerning the budget director is false?
A. The budget director has the responsibility of specifying the process by which budget data will be
gathered.
B. The budget director collects information and participates in preparing the master budget.
C. Sales forecast or sales budget.
D. Production budget.
C. The budget director communicates budget procedures and deadlines to employees throughout the
organization.
D. The budget director usually has the authority to give final approval to the master budget.
3.
Budgets are related to which of the following management functions?
A. Planning
C. Performance evaluation
B. Control
D. All of the choices.
4.
A budget serves as a benchmark against which
A. Actual results can be compared.
B. Allocated results can be compared.
C. Actual results become inconsequential.
D. Cash balances can be compared to expense totals.
5.
A company's plan for the acquisition of long-lived assets, such as buildings and equipment, is commonly
called a
A. Pro-forma budget.
C. Financial budget.
B. Master budget.
D. Capital budget.
6.
Brgy. Bagets is preparing budget on its equipment needs on an on-going basis, with a new quarter being
added to the budget as the current quarter is completed. This type of budget is most commonly known as
a
A. Capital budget.
C. Revised budget.
B. Rolling budget.
D. Pro-forma budget.
7.
Which of the following would depict the logical order for preparing (1) a production budget, (2) a cash
budget, (3) a sales budget, and (4) a direct-labor budget?
A. 1-3-4-2
B. 2-3-1-4
C. 2-1-3-4
D. 3-1-4-2
8.
A company's sales forecast would likely consider all of the following factors, except
A. Political and legal events.
C. Top management's attitude toward
B. Advertising and pricing policies.
decentralized operating structures.
D. Competition.
A company that uses activity-based budgeting performs the following:
1—Plans activities for the budget period
2—Forecasts the demand for products and services as well as the customers to be served
3—Budgets the resources necessary to carry out activities
9.
Which of the following denotes the proper order of the preceding activities?
A. 1-2-3
B. 2-1-3
C. 2-3-1
D. 3-1-2
10.
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
C. Budgeted purchases = CGS + EI + BI
B. Budgeted purchases = CGS + BI
D. Budgeted purchases = CGS + EI – BI
11.
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.
12.
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 choices.
13.
Inventory policy is most critical in the budgeting of
A. Sales.
B. Cost of goods sold.
14.
C. Purchases.
D. Expenses.
Which of the following will occur if Lydio’s actual sales in May are lower than its budgeted sales for that
month?
A. Lydio won't have enough cash to cover bills requiring payment in May.
B. Lydio’s actual inventory at the end of May will be higher than budgeted.
C. Lydio’s actual purchases in June will be higher than budgeted.
D. All of the choices.
15.
One difference between budgeting in for-profit and not-for-profit 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.
16.
Bekbek 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. ₱184,000.
B. ₱264,000.
C. ₱280,000.
D. ₱136,000.
17.
Mumshie Inc budgeted purchases of ₱200,000. Cost of sales was ₱240,000 and the desired ending inventory
was ₱84,000. The gross profit rate is 40%. The beginning inventory was
A. ₱284,000.
B. ₱28,000.
C. ₱356,000.
D. ₱124,000.
18.
Bajang Richness Corp’s 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.
19.
Marvin and Lyra Hopia Company had budgeted sales of 44,000 units for January, and 60,000 for February.
The budgeted beginning inventory for January 1 was 14,000 units. Hopia 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.
20.
Budapet Foods Corp. 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. 2,500 pounds.
C. 2,800 pounds.
D. 3,050 pounds.
21.
Neggie Company has prepared the following flexible budget for production costs: total production costs =
₱260,000 + ₱5X, where X is the number of machine hours. Neggie 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.
22.
Ka Puroy has projected sales to be ₱130,000 in June, ₱135,000 in July, and ₱150,000 in August. Ka Puroy
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.
B. ₱127,300.
C. ₱133,300.
D. ₱138,500.
23.
Ebee DDYY 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.
24.
Doraemon 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.
25.
Madie Lim 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.
C. ₱278,000.
B. ₱168,000.
D. None of these.
26.
Karibal, Inc. has projected sales to be ₱160,000 in April, ₱200,000 in May, and ₱240,000 in June. Karibal
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.
C. ₱40,000.
B. ₱144,000.
D. None of these.
27.
Lydio Foods World has projected sales to be ₱100,000 in June, ₱90,000 in July, and ₱70,000 in August.
Lydio 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.
28.
Proud Mary has projected sales to be: February, ₱20,000; March, ₱18,000; April, ₱16,000; May, ₱20,000;
and June, ₱22,000. Proud Mary 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.
29.
LyVin Company collects 20% of a month's sales in the month of sale, 70% in the month following sale, and
6% in the second month following sale. The remainder is uncollectible. Budgeted sales for the next four
months are:
Month
Budgeted Sales
January
₱200,000
February
300,000
March
350,000
April
250,000
From the above given, cash collections in April are budgeted to be
A. ₱321,000.
B. ₱313,000.
C. ₱320,000.
30.
D. ₱292,000.
DiviQueen (DQ), Inc. is estimating the following sales for the first six months of next year
January
₱250,000
February
220,000
March
240,000
April
300,000
May
360,000
Sales of DQ are normally collected as 60% in the month of sale, 35% in the month following the sale, and
the remaining 5% being uncollectible. Based on this information, how much cash should DQ expect to
collect during the month of April?
A. ₱250,800
B. ₱264,000
C. ₱290,700
D. ₱306,000
31.
Hokage Company's sales budget shows the following projections for next year:
Sales in units
First Quarter
60,000
Second Quarter
80,000
Third Quarter
45,000
Fourth Quarter
55,000
Inventory at the beginning of the year was 18,000 units. The finished goods inventory at the end of each
quarter is to equal 30% of the next quarter's budgeted unit sales. How many units should be produced
during the first quarter?
A. 24,000
B. 48,000
C. 66,000
D. 72,000
32.
The following information relates to Baby Manufacturing Corporation for next quarter:
January
February
Expected sales (in units)
440,000
390,000
Desired ending finished goods inventory (in units)
28,000
30,000
How many units should Baby plan on producing for the month of February?
A. 360,000 units
B. 388,000 units
C. 392,000 units
33.
March
400,000
35,000
D. 420,000 units
Basha Department Store expects to generate the following sales figures for the next three months:
July
August
September
Expected sales
₱480,000
₱560,000
₱600,000
Basha's gross profit rate is 45% of peso sales. At the end of each month, Basha wants a merchandise
inventory balance equal to 30% of the following month's expected sales, stated at cost. What amount of
merchandise inventory should Basha plan to purchase in August?
A. ₱257,400
B. ₱314,600
C. ₱320,000
D. ₱327,800
34.
Monster Truck Fabrication, Inc. manufactures and sells box trailers for semi trucks. Each trailer requires
two axles. For next quarter, Monster Truck has scheduled 720 trailers for production and 750 for sale.
Monster Truck is also moving to just-in-time (JIT) purchasing next quarter and plans on reducing its
inventory of trailer axles by 100. How many axles should Monster Truck budget for purchase for next
quarter?
A. 1,240 axles
B. 1,300 axles
C. 1,340 axles
D. 1,400 axles
35.
RNB King Manufacturing Corporation's most recent production budget indicates the following required
production:
Required production (units)
October
210,000
November
175,000
December
110,000
Each unit of finished product requires five pounds of raw materials. The company maintains raw materials
inventory equal to 25% of the next month's expected production needs. How many pounds of raw material
should RNB plan on purchasing for the month of November?
A. 1,006,250
B. 793,750
C. 1,012,500
D. 893,500
36.
Romulo Company is working on its direct labor budget for the next two months. Each unit of output requires
0.41 direct labor hours. The direct labor rate is ₱8.10 per direct labor hour. The production budget calls
for producing 5,000 units in May and 5,400 units in June. If the direct labor work force is fully adjusted to
the total direct labor hours needed each month, what would be the total combined direct labor cost for the
two months?
A. ₱16,605
B. ₱17,933.40
C. ₱17,269.20
D. ₱34,538.40
37.
Salvacion Corporation is working on its direct labor budget for the next two months. Each unit of output
requires 0.15 direct labor-hours. The direct labor rate is ₱7 per direct labor hour. The production budget
calls for producing 6,500 units in April and 6,200 units in May. The company guarantees its direct labor
workers a 40-hour paid work week. With the number of workers currently employed, that means that the
company is committed to paying its direct labor work force for at least 1,000 hours in total each month even
if there is not enough work to keep them busy. What would be the total combined direct labor cost for the
two months?
A. ₱13,825
B. ₱13,335
C. ₱14,000
D. ₱13,510
38.
Rosalyn Company manufactures and sells women's skirts. Each skirt (unit) requires 2.5 yards of cloth.
Selected data from Rosalyn's master budget for next quarter are shown below:
July
August
September
Budgeted sales (in units)
6,000
8,000
9,000
Budgeted production (in units)
8,000
10,500
12,000
Each unit requires 1.5 hours of direct labor, and the average hourly cost of Traverse's direct labor is ₱10.
What is the cost of Rosalyn Company's direct labor in September?
A. ₱135,000
B. ₱180,000
C. ₱157,500
D. ₱120,000
39.
The manufacturing overhead budget at Rommel Corporation is based on budgeted direct labor hours. The
direct labor budget indicates that 4,400 direct labor hours will be required in January. The variable overhead
rate is ₱1.30 per direct labor hour. The company's budgeted fixed manufacturing overhead is ₱60,280 per
month, which includes depreciation of ₱17,160. All other fixed manufacturing overhead costs represent
current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing
overhead budget should be
A. ₱5,720.
B. ₱43,120.
C. ₱48,840.
D. ₱66,000.
40.
Sedita, Inc. is working on its cash budget for July. The budgeted beginning cash balance is ₱46,000.
Budgeted cash receipts total ₱175,000 and budgeted cash disbursements total ₱174,000. The desired
ending cash balance is ₱50,000. The excess (deficiency) of cash available over disbursements for July will
be
A. ₱47,000.
B. ₱221,000.
C. ₱45,000.
D. ₱1,000.
PROBLEMS
Problem 1
At March 31 Rihana Enterprises, a merchandising firm, had an inventory of 38,000 units, and it had
accounts receivable totaling P85,000. Sales, in units, have been budgeted as follows for the next four months:
April ........................
May .........................
June ........................
July .........................
60,000
75,000
90,000
81,000
Rihana's board of directors has established a policy to commence in April that the inventory at the end of
each month should contain 40% of the units required for the following month's budgeted sales.
The selling price is P2 per unit. One-third of sales are paid for by customers in the month of the sale, the
balance is collected in the following month.
1. Prepare a merchandise purchases budget showing how many units should be purchased for each of the
months April, May, and June.
2. Prepare a schedule of expected cash collections for each of the months April, May, and June.
Problem 2
A sales budget is given below for one of the products manufactured by the AJ Co.
January ...................
February ..................
March ......................
April ........................
May .........................
June ........................
21,000
36,000
61,000
41,000
31,000
25,000
units
units
units
units
units
units
The inventory of finished goods at the end of each month should equal 20% of the next month's sales.
However, on December 31 the finished goods inventory totaled only 4,000 units.
Each unit of product requires three specialized electrical switches. Since the production of these specialized
switches by AJ's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at
the end of each month equal to 30% of the next month's production needs. This requirement had been met on
January 1 of the current year.
Requirement: Determine the quantity of switches to be purchased each month for January, February, and March
and in total for the quarter.
Problem 3
JD Corporation is working on its direct labor budget for the next three months. Each unit of output requires
0.30 direct labor-hours. The direct labor rate is P70 per direct labor-hour. The production budget calls for producing
8,000 units in April, 8,300 units in May and 9,000 units in June. The company guarantees its direct labor workers
a 40-hour paid work week. With the number of workers currently employed, that means that the company is
committed to paying its direct labor work force for at least 2,840 hours in total each month even if there is not
enough work to keep them busy
Required: Direct labor budget for the next three months.
Problem 4
Redeemer Company has obtained the following sales forecast data:
Cash sales ...............
Credit sales ..............
July
P80,000
P240,000
August
P70,000
P220,000
September
P50,000
P180,000
October
P60,000
P200,000
The regular pattern of collection of credit sales is 20% in the month of sale, 70% in the month following
the month of sale, and the remainder in the second month following the month of sale. There are no bad debts.
1. The budgeted accounts receivable balance on September 30 is
__________________________
2. The budgeted cash receipts for October are:
__________________________
Problem 5
Keisha Melle Corporation is preparing its cash budget for July. The budgeted beginning cash balance is
P25,000. Budgeted cash receipts total P141,000 and budgeted cash disbursements total P139,000. The desired
ending cash balance is P30,000.
1. The excess (deficiency) of cash available over disbursements for July is:
2. To attain its desired ending cash balance for July, the company should borrow:
__________________
__________________
Problem 6
Racquel Farm Supply is located in a small town in the rural west. Data regarding the store's operations
follow:
•
Sales are budgeted at P290,000 for November, P310,000 for December, and P210,000 for January.
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•
•
•
•
•
•
Collections are expected to be 65% in the month of sale, 33% in the month following the sale, and
2% uncollectible.
The cost of goods sold is 80% of sales.
The company purchases 70% of its merchandise in the month prior to the month of sale and 30% in
the month of sale. Payment for merchandise is made in the month following the purchase.
Other monthly expenses to be paid in cash are P21,100.
Monthly depreciation is P21,000.
Ignore taxes.
Statement of Financial Position
October 31
Assets:
Cash................................................................................................
Accounts receivable
(net of allowance for uncollectible accounts) ..................................
Inventory ........................................................................................
Property, plant and equipment
(net of P624,000 accumulated depreciation) ..................................
Total assets .....................................................................................
1,026,000
P1,290,400
Liabilities and Stockholders’ Equity:
Accounts payable .............................................................................
Common stock .................................................................................
Retained earnings ............................................................................
Total liabilities and stockholders’ equity .............................................
P 239,000
740,000
311,400
P1,290,400
1.
2.
3.
4.
5.
6.
7.
P
25,000
77,000
162,400
Expected cash collections in December are
____________________
The cost of December merchandise purchases would be
____________________
December cash disbursements for merchandise purchases would be
____________________
The excess (deficiency) of cash available over disbursements for December would be __________
The net income for December would be
____________________
The cash balance at the end of December would be
____________________
The accounts receivable balance, net of uncollectible accounts, at the end of December would be:
____________________
8. Accounts payable at the end of December would be:
____________________
9. Retained earnings at the end of December would be:
____________________
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