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Budgeting - master budget preparation completed JP Corp
Accountancy (University of the East (Philippines))
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The following is a continuous exercise on the presentation of the 2021 Master Budget for JP
Corp.
A. At the unit sales price of P 50, the budgeted sales volume for 2021 and for the First quarter of
2022
2021
2022
First quarter
4,000 units
5,000
Second quarter
5,000
6,000
Third quarter
6,000
Fourth quarter
9,000
The company has estimated 800 units of Finished Goods in stock as of January 1, 2021
costing P 22 each . Stock level is maintained at 25 % of the estimated sales volume for the
succeeding quarter.
Required : Prepare 1. Sales Budget 2. Production Budget
******************************************************************************************************************
B. The standard prime cost of the product of JP Corp. consist of:
Raw material
:
5 lbs
@P4
P 20
Direct labor
:
4 hours @ P 3
12
P 32
Factory Overhead and selling expenses for one year have been budgeted as follows”
Factory Overhead
Selling Expenses
20,000 units
P 58,000
P 32,000
30,000
78,000
42,000
General and Administrative expenses are estimated to be at P 30,000 per annum.
As of January 1, 2021 , the company had 3,000 lbs of raw materials costing P 4 per pound. The
stock level is maintained at 10 % of production requirement of the succeeding quarter . inventories of
Work in process and Factory Supplies are more or less constant at P 5,000 and P 2,000
respectively.
Required : 3. Direct Materials Used Budget
4. Direct Materials Purchases budget
5. Direct labor Cost Budget
6. Factory Overhead Budget
7. Inventory Level Budget
8. Cost of Goods Sold Budget
9. Operating Expenses Budget
C. The Balance Sheet of JP Corp. as of January 1, 2021 contained the following:
Assets
Cash
P 10,000
Accounts Receivable
25,000
Finished Goods
17,600
Work in process
5,000
Raw materials
12,000
Factory Supplies
2,000
Machinery and Equipment
50,000
Total Assets
P121,600
=======
Accounts payable
P 20,000
Income taxes payable
15,000
Capital Stock ( par value P 100)
60,000
Premium on Capital Stock
10,000
Retained Earnings
16,600
Total Liabilities and Stockholders’ Equity
P 121,600
=======
Cash sales is 20%. Collections on Account Sales have been estimated as follows:
60% during the quarter of sale
40% during the following quarter
75 % percent of purchases is paid during the quarter when they are made with the remainder
paid during the succeeding quarter.
Prepayments and Accruals are minimal . Annual depreciation on Fixed assets is allocated as
follows : Factory - P 9,000; Selling P 3,000 ; and Office P 6,000.
The company has adopted the policy of maintaining its cash balance of one fifth of the
succeeding quarter’s requirement for operations. One year bank loans in multiples of P 5,000 maybe
obtained at the beginning of a quarter with interest of 15% payable quarterly. Desired cash balance
at year end is P 40,000 . Income tax rate is 30%.
Required : 9. Cash Budget 10. Budgeted Income Statement 11. Budgeted Balance Sheet
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SOLUTION :
JP Corporation
Sales Budget
For the Budget year 2021
Schedule I
QUARTER
UNITS
First
Second
Third
Fourth
TOTAL
AMOUNT @ P 50
4,000
5,000
6,000
9,000
24,000
P 200,000
250,000
300,000
450,000
P 1,200,000
JP Corporation
Production Budget
For the Budget year 2021
Schedule II
Units to be sold (Schedule I)
Add: Desired Ending Inventory
Total
Less: Beginning Inventory
Units to be Produced
First
Second
QUARTER
Third
Fourth
4,000
1,250
5,250
800
4,450
5,000
1,500
6,500
1,250
5,250
6,000
2,250
8,250
1,500
6,750
9,000
1,250
10,250
2,250
8,000
Total
2022
1stFQ
24,000
1,250
25,250
800
24,450
5,000
1,500
6,500
1,250
5,250
JP Corporation
Direct Materials Used Budget
For the Budget year 2021
Schedule III -A
First
Units to be Produced (Schedule II)
X Unit Usage
Total Usage
Unit Cost
Cost of Direct Materials Used
QUARTER
Second
Third
Fourth
Total
4,450
5,250
6,750
8,000
24,450
5
5
5
5
5
22,250
26,250
33,750
40,000
122,250
P
4
4
4
4
4
P89,000 P105,000 P135,00 P160,000 P489,000
0
JP Corporation
Direct Materials Purchases Budget
For the Budget year 2021
Schedule III
First
Total Usage ( Schedule II – A)
Add: Desired Ending Inventory
Total
Less: Beginning Inventory
Units to be Purchased
X Cost per unit
Cost of Direct Materials Purchases
22,250
2,625
24,875
3,000
21,875
4
P87,500
QUARTER
Second
Third
26,250
3,375
29,625
2,625
27,000
4
P108,000
33,750
4,000
37,750
3,375
34,375
4
P137,500
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Fourth
40,000
2,625
42,625
4,000
38,625
4
P154,50
0
Total
122,250
2,625
124,875
3,000
121,875
4
P487,500
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JP Corporation
Direct labor Budget
For the Budget year 2021
QUARTER
First
Second
Third
Schedule IV
Units to be Produced
X Hours required per unit
Total hours Needed
X Hourly rate
Total Direct labor Cost
4,450
4
17,800
3
P 53,400
5,250
4
21,000
3
P63,000
Fourth
6,750
4
27,000
3
P81000
Total
8,000
4
32,000
3
P96,000
24,450
4
97,800
3
P293,40
0
Factory Overhead and selling expenses for one year have been budgeted as follows”
Factory Overhead
Selling Expenses
20,000 units
P 58,000
P 32,000
30,000
78,000
42,000
JP Corporation
Factory Overhead Budget
For the Budget year 2021
Schedule V
QUARTER
Second
Third
First
Variable Overhead
Units to be Produced
X variable rate per unit
Total
Fixed Overhead
Total Factory Overhead
Factory Overhead per unit
Fourth
Total
4,450
2
8,900
4,500
P 13,400
5,250
2
10,500
4,500
P15,000
6,750
2
13,500
4,500
P18,00
0
8,000
2
16,000
4,500
P 20,500
24,450
2
48,900
18,000
P66,900
P 3.01
P 2.86
P 2.67
P
P 2.74
2.56
Note V- A - Computation of Variable rate and Fixed Overhead
Variable Overhead rate =
78,000 - 58,000
=
30,000 – 20,000
Fixed Overhead = 78,000 – 2 ( 30,000) = P 18,000
P 20,000 = P 2.00
10,000
JP Corporation
Inventory Level Budget
For the Budget year 2021
First
Second
Schedule VI
Finished Goods Inventory , End
Units ( Schedule II)
X Product Unit Cost
Total
Raw Materials Inventory, End
Units ( Schedule III)
X Cost per pound
Total
Third
Fourth
1,250
35.01
P 43,762.50
1,500
34.86
P 52,290
2,250
34.67
P 78,007.50
1,250
34.56
P 43,200
2,625
P4
P 10,500
3,375
4
P 13,500
4,000
4
P 16,000
2,625
4
P10,500
Note VI- A - Computation of Product unit Cost
QUARTER
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First
Direct materials ( 5lbs X P 4)
Direct labor ( 4 hours X P 3)
Factory Overhead ( Schedule V)
Product unit cost
Second
P20
12
3.01
P 35.01
P20
12
2.86
P 34.86
Third
P20
12
2.67
P 34.67
Total
P20
12
2.56
P 34.56
JP Corporation
Cost of Good Sold Budget
For the Budget year 2021
Schedule VII
QUARTER
Second
Third
First
Direct materials Used ( Sch III – A)
Direct labor ( Schedule IV)
Factory Overhead ( Schedule V)
Total Manufacturing Costs
Add : Finished Goods , Beg (Sch VI)
Total Goods Available for Sale
Less: Finished Goods , End ( Sch VI)
Cost of Goods Sold
P89,000
53,400
13,400
155,800
17,600
173,400
43,763
129,637
P105,000 P135,000
63,000
81,000
15,000
18,000
183,000
234,000
43,763
52,290
226,763
286,290
52,290
78,008
P174,473
P208,282
Fourth
Total
P160,000
96,000
20,500
276,500
78,008
354,508
43,200
P 311,308
P489,000
293,400
66,900
849,300
17,600
866,900
43,200
P 823,700
JP Corporation
Operating Expenses Budget
For the Budget year 2021
Schedule VIII
First
Variable Selling Expenses
Units to be Sold ( sch I)
X variable rate per unit
Total
Fixed Selling Expenses
Total Selling Expenses
Total General and Admin. Expenses
Total Operating Expenses
4,000
1
4,000
3,000
7,000
7,500
P14,500
QUARTER
Second
Third
5,000
1
5,000
3,000
8,000
7,500
P15,500
6,000
1
6,000
3,000
9,000
7,500
P16,50
0
Note V- A - Computation of Variable rate and Fixed Overhead
Variable Selling rate =
42,000 - 32,000
= P 10,000
30,000 – 20,000
10,000
Fixed Selling Exp = 42,000 – 1 ( 30,000) = 12,000
Exhibit B
Fourth
Fourth
9,000
1
9,000
3,000
12,000
7,500
P19,500
Total
24,000
1
24,000
12,000
36,000
30,000
P66,000
= P 1.00
JP Corporation
Budgeted Income Statement
For the Budget year 2021
First
Sales ( Schedule I)
Less: Cost of Goods Sold ( Sch VII)
Gross Profit
Less: Operating expenses ( Sch VIII)
Net Operating Income
Less : Interest Expense ( Exh A)
Net Income before tax
P200,000
129,637
70,363
14,500
55,863
1,313
54,550
QUARTER
Second
Third
250,000
174,473
75,527
15,500
60,027
1,313
58,714
300,000
208,282
91,718
16,500
75,218
750
74,468
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Fourth
450,000
311,308
138,692
19,500
119,192
119,192
Total
1,200,000
823,700
376,300
66,000
310,300
(3,376)
306,924
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Less : Income tax ( 30%)
Net Income After tax
16,365
P 38,185
17,614
P 41,100
22,340
P 52,128
35,758
P 83,434
92,077
P 214,847
JP Corporation
Cash Budget
For the Budget year 2021
Exhibit A
QUARTER
First
Second
Third
Fourth
Total
Cash Balance, Beg.
P10,000
P42,262
Add: Collections from Customers (Note A)
161,000
234,000
Total Cash Available
171,000
276,262
Less : Cash Disbursements
Purchases ( Note B)
P 85,625
102,875
Direct labor ( Schedule IV)
53,400
63,000
12,750
Factory Overhead ( Note C)
11,150
Operating Expenses ( Note D)
12,250
13,250
Income taxes
15,000
Total
162,425
206,875
Net Cash Flow (deficit) before Additional Financing
8, 575
69,387
Required Minimum Cash balance
(A)
(41,375)
(48,225)
Cash Excess ( deficiency)
(32,800)
21,162
Bank Loans to be Obtained ( Repayments)
35,000
(15,000)
Interest on bank Loans to be Obtained
(1,313)
(1,313)
Cash in Excess of required minimum Cash balance (B)
887
4,849
Cash balance , End
C=A+B
P42,262
P53,074
Interest
First Quarter & 2nd Q = 35,000 X 15% X 3/12 = P 1,312.50
Third Q
= 20,000 X 15% X 3/12 = P 750
P 53,074
284,000
337,074
P 75,199
402,000
477,199
P 10,000
1,081,000
1,091,000
130,125
150,250
P 468,875
81000
96,000
293,400
15,750
14,250
18,250
17,250
241,125
95,949
(56,350)
39,599
(20,000)
(750)
18,849
P 75,199
281,750
195,449
(40,000)
155,449
155,449
195,449
57,900
57,000
15,000
892,175
198,825
(40,000)
158,825
(3,376)
155,449
P 195,449
Note A - Collections from Customers
First
Sales ( Schedule I)
Less : Account sales ( 80%)
Cash sales
(20%)
Collections from Account sales
Last Quarter (40%)
This Quarter ( 60%)
Total Collections
QUARTER
Second
Third
Fourth
Total
P 200,000
250,000
300,000
450,000
1,200,000
160,000
40,000
200,000
50,000
240,000
60,000
360,000
90,000
960,000
240,000
25,000
96,000
P 161,000
64,000
120,000
P 234,000
80,000
144,000
P 284,000
96,000
216,000
P 402,000
265,000
576,000
P 1,081,000
AR, Dec 31 = P 360,000 X 40% = P 144,000
Note B - Payments to Suppliers
First
Purchases ( Schedule III)
Payments
Last Quarter (25%)
QUARTER
Second
Third
P87,500 P108,000 P137,500
20,000
21,875
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27,000
Fourth
Total
P154,500
P487,500
34,375
103,250
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This Quarter
Total Payments
( 75%)
AP = 154,500 X 25%
65,625
P 85,625
81,000
P 102.875
103,125
P 130,125
First
QUARTER
Second
Third
115,875
P150,250
365,625
P 468,875
= P 38,625
Note C - Payments for factory Overhead
Factory Overhead ( Schedule V)
Less : Depreciation
Payments
Fourth
Total
P 13,400
P15,000
P18,000
P 20,500
P66,900
2,250
P 11,150
2,250
P 12,750
2,250
P 15,750
2,250
P 18,250
9,000
P 57,900
Note D - Payments for Operating Expenses
First
Operating Expenses ( Schedule VIII)
Less : Depreciation
Payments
Exhibit C
QUARTER
Second
Third
Fourth
Total
P14,500
P15,500
P16,500
P19,500
P66,000
2,250
P 12,250
2,250
13,250
2,250
P 14,250
2,250
P 17,250
9,000
P 57,000
JP Corp.
Budgeted Balance Sheet
December 31, 2021
Assets
Cash ( Exhibit A)
Accounts Receivable
Finished Goods ( Schedule VI)
Work in process
Raw materials ( Schedule VI)
Factory Supplies
Machinery and Equipment ( 50,000 - 18,000)
Total Assets
P 195,449
144,000
43,200
5,000
10,500
2,000
32,000
P432,149
=======
Liabilities and Owner’s Equity
Accounts payable
Income taxes payable ( Exhibit B)
Capital Stock ( par value P 100)
Premium on Capital Stock
Retained Earnings
( 16,600 + 214,847 )
Total Liabilities and Stockholders’ Equity
P 38,625
92,077
60,000
10,000
231,447
P 432,149
=======
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