Q.

1
VIEWSONIC PVT.LTD
BUDGETED INCOME STATEMENT
FOR 1st QUARTER 1999

Description
Sales
Purchases
Wages
Supplies
Utilities
Rent
Insurance
Advertising
Depreciation
Net Profit

JANUARY
285,000
129,000
35,000
26,000
6,500
15,000
12,000
24,500
20,000
17,000

FEBRUARY
323,000
168,000
37,000
23,000
8,700
12,800
12,000
28,500
20,000
13,000

MARCH
221,000
95,000
30,000
21,500
7,200
13,600
12,000
18,000
20,000
3,700

Please make a cash budget for the months of January, February and March 1999 based on the
data for
View sonic Receivable Trend:
30% of Sales are collected in the month of sale
30% of Sales are collected after the month of sale
40% of Sales are collected two months after the sale is made
View sonic Payable Trend:
10% of Purchases are paid for in the month of purchase
35% of Purchases are paid after the month of purchase
55% of Purchases are paid two months after the purchase is made
Additional Information:
Rent and Insurance expense were prepaid at the end of 1998
All other expenses are paid for in the month they were incurred
November Sales = 195,000
November Purchases = 100,000
December Sales = 250,000
December Purchases = 165,000
Please see attached Budgeted Income Statement for 1st Quarter 1999
Q.2 Niblick supplies golf equipment. Ten percent of his sales are for cash; the remainder is on
one months credit. He receives one months credit on all purchases. Sales and purchases are as
follows:
Sales
Purchases
$
$
December 2007
30,000
16,000
January 2008
25,000
14,000
February
18,000
20,000
March
22,000
25,000
April
28,000
30,000
Niblick pays wages of $2,000 per month. He pays rent of $10,000 per annum; he paid one years
rent in advance on 1 January 2008. Other expenses, $1,500 per month, are paid currently. On 6

February 2008, Niblick plans to sell a van for $2,300 and to buy a new one for $6,000 on 15
March 2008.
Niblick draws $1,000 a month for living expenses.
At 31 December 2007, Niblicks bank balance was $7,000 (in hand). His father will lend the
business $4,000 on 1 April 2008.
Required
Niblicks cash budget for the four months to 30 April 2008.
Q.3 ABC Company is a retail sporting goods store that uses an accrual accounting system. Facts
regarding its operations follow:
Sales are budgeted at $220,000 for December and $200,000 for January, terms 1/eom, n/60.
Collections are expected to be 60 percent in the month of sale and 38 percent in the month
following the sale. Two percent of sales are expected to be uncollectible and recorded in an
allowance account at the end of the month of sales. Bad debts expense is included as part of
operating expenses.
Gross margin is 25 percent of sales.
All accounts receivable are from credit sales. Bad debts are written off against the allowance
account at the end of the month following the month of sale.
ABC desires to have 80 percent of the merchandise for the following months sales on hand at
the end of each month. Payment for merchandise is made in the month following the month of
purchase.
Other monthly operating expenses to be paid in cash total $22,600.
Annual depreciation is $216,000, one-twelfth of which is reflected as part of monthly operating
expenses.
ABC Companys statement of financial position at the close of business on November 30
follows:
ABC COMPANY
Statement of Financial Position
November 30, 2010
Assets
Cash
$ 22,000
Accounts receivable (net of $4,000 allowance for doubtful accounts)
76,000
Inventory
132,000
Property, plant, and equipment (net of$680,000 accumulated depreciation) 870,000
Total assets
$1,100,000
Liabilities and Stockholders Equity
Accounts payable
$ 162,000
Common stock
800,000
Retained earnings
138,000
Total liabilities and equity
$1,100,000
Required
1. What is the total of budgeted cash collections for December?
2. How much is the book value of accounts receivable at the end of December?
3. How much is the income (loss) before income taxes for December?

4. What is the projected balance in inventory on December 31, 2010?

5. What are budgeted purchases for December?
6. What is the projected balance in accounts payable on December 31, 2010?
Q4. Hansell Companys management wants to prepare budgets for one of its products, duraflex,
for July 2010.
The firm sells the product for $80 per unit and has the following expected sales (in units) for
these months
in 2010:
April
May
June
July
August
September
5,000
5,400
5,500
6,000
7,000
8,000
The production process requires 4 pounds of dura-1000 and 2 pounds of flexplas. The firms
policy is to maintain an ending inventory each month equal to 10 percent of the following
months budgeted sales, but in no case less than 500 units. All materials inventories are to be
maintained at 5 percent of the production needs for the next month, but not to exceed 1,000
pounds. The firm expects all inventories at the end of June to be within the guidelines. The
purchase department expects the materials to cost $1.25 per pound and $5.00 per pound for dura1000 and flexplas, respectively.
The production process requires direct labor at two skill levels. The rate for labor at the K102
level is $50 per hour and for the K175 level is $20 per hour. The K102 level can process one
batch of duraflex per hour; each batch consists of 100 units. The manufacturing of duraflex also
requires one-tenth of an hour of K175 workers time for each unit manufactured.
Variable manufacturing overhead is $1,200 per batch plus $80 per direct labor-hour. The
company uses an actual cost system with a LIFO cost-flow assumption.
Hansell Company expects its trial balance on June 30 to be as follows:

Typically, cash sales represent 20 percent of sales while credit sales represent 80 percent. Credit
sales terms are 2/10, n/30. Hansell bills customers on the first day of the month following the
month of sale. Experience has shown that 60 percent of the billings will be collected within the
discount period, 25 percent by the end of the month after sales, 10 percent by the end of the

second month after the sale, and 5 percent will ultimately be uncollectible. The firm writes off
uncollectible accounts after 12 months.
The purchase terms for materials are 2/15, n/60. The firm makes all payments within the discount
period.
Experience has shown that 80 percent of the purchases are paid in the month of the purchase and
the remainder is paid in the month immediately following. In June 2010, the firm budgeted
purchases of $25,000 for dura-1000 and $22,000 for flexplas.
In addition to variable overhead, the firm has a monthly fixed factory overhead of $50,000, of
which $20,000 is depreciation expense. The firm pays all manufacturing labor and factory
overhead when incurred.
Total budgeted marketing, distribution, customer service, and administrative costs for 2010 are
$2,400,000. Of this amount, $1,200,000 is considered fixed and includes depreciation expense of
$120,000.
The remainder varies with sales. The budgeted total sales for 2010 are $4 million. All marketing
and administrative costs are paid in the month incurred.
Management desires to maintain an end-of-month minimum cash balance of $40,000. The firm
has an agreement with a local bank to borrow its short-term needs in multiples of $1,000 up to
$100,000 at an annual interest rate of 12 percent. Borrowings are assumed to occur at the end of
the month. Bank borrowing at July 1 is none.
Required On the basis of the preceding data and projections, prepare the following budgets:
a. Sales budget for July (in dollars).
b. Production budget for July (in units).
c. Production budget for August (in units).
d. Direct materials purchases budget for July (in pounds).
e. Direct materials purchases budget for July (in dollars).
f. Direct manufacturing labor budget for July (in dollars).
g. Prepare the cash budget for July 2010.
h. Prepare the budgeted income statement for July 2010.
Q5. John commenced business on I January 2012 trading as John Kitchen Cabinets, selling 3D kitchen furniture. He had opened a business bank account on 15 December 2011, paying
$25000 into it as his opening capital. On 21st December 2011, He rented premises paying the first
quarters rent, due on 25th of December 2011, $1200. Other expenditure in the same month was
for the purchase of fixed assets for cash, $8000, and stock $20,000which was bought on one
months credit.
John estimates that his other purchases and the sales for the year to 31st December 2012 will be
as follows:
Qtr.
Purchases
Sales
$
$
01 Jan 31 Mar
12,000
15,000
01 Apr 30 Jun
18,000
24,000
01 Jul 30 Sep
21,000
30,000
01 Oct 31 Dec
15,000
36,000
All purchases and sales will be on one months credit
Other expenditure in 2012 will be as follows:

January 5 purchase of motor van for cash $5,000; the van is to be depreciated annually at the rate
of 20% on cost.
Wages $2,000 per month paid currently.
John will draw $500 per month for leaving expenses. He plans to sell his private car in June for
$1500 and to pay the proceeds into the business as additional capital. A friend has also promised
to lend the business $6,000 in September 2012.
Johns bank has agreed to allow overdraft facilities. If they are required with interest at 10% per
annum. Interest will be debited in the bank statements on the last day of each half year and will
be calculated on the average overdraft.
Required:
Prepare Johns Cash Budget for the year to 31st December 2012.
Q6 Tesco estimates that his purchases and sales for the year to 30 June 1994 will be as follows:
Tesco balance sheet at 30 June 1993 was as follows:
Fixed assets
Cost
Acc. Dep.
Net
Equipment
5000
3000
2000
Motor vehicles
8000
5000
3000
13,000
8,000
5,000
Current asset
Stock
4,800
Trade debtors
6,800
Cash at bank
10,000
21,600
Less current liabilities
Trade creditors
(3,100)
Net working capital
18,500
Finance by capital account: balance at 1 July 1992
23,500
20,000
Add: profit for the year
8500
28,500
Less drawing
(5,000)
23,500
Purchase
Sale
1993 July- September
18,000
33,000
October December
24,000
51,000
1994 January march
21,000
42,000
April June
24,000
48,000
Tesco receives one months credit on all purchases and allows one months credit on all sales.
The following expenses will be incurred in the year to 30 June 1994:
Rent $800 per quarter payable in advance on 1 January, 1 April, 1 July 1 October.
Wage $1,800 per month payable currently
On 1 July 1993 Tesco will pay an insurance premium in the sum of $1,500 up to 30 September
1994
Other expenses will amount to $2000 per month
Tesco will additional equipment on 1 October 1993 $3,000

A van which cost $4000 and has a written down value at 30 June 1993 of $1,500 will be sold for
$1,100 on 1 January 1994. A new van will be purchased on 1 October 1993 for $8000
Motor van is depreciated at 12 % per annum on cost, Equipment is depreciated by 10% per
annum on cost. Tesco will draw $1,000 per month for living expenses. Stock of goods at 30 June
1994 will be $7,300.
Required:
I.
II.

III.

Tesco cash budget for the year to 30 June 1994 and

A forecast trading and profit and loss account for the year to 30 June 1994
and
A balance sheet as at that date.

Q7 Gold Sporting Equipment (GSE) is in the process of preparing its budget for the third quarter
of 2010. The budgeting staff has gathered the following data:
1. Account balances as of June 30:
Cash
$ 25,000
Accounts receivable
15,000
Short-term payable (equipment purchase)
0
Merchandise inventory
47,520
Building and equipment (net)
200,000
Bank loans pay
0
Income tax payable
0
2. Recent and forecasted sales:
June (actual)
$ 75,000
July
80,000
August
82,000
September
90,000
October
100,000
3. Sales are 80 percent cash and 20 percent on credit. Credit accounts are all collected 30 days
after sale.
4. At gross purchase prices of inventories, GSEs gross margin averages 40 percent of revenues.
GSE records all inventory purchases net of available purchase discounts.
5. Operating expenses: Salaries and wages, $8,000 per month plus 5 percent of revenue; rent and
property tax, $1,000 per month; other operating expenses, excluding depreciation, 2 percent of
revenues; depreciation $800 per month. All cash operating expenses in a month are paid before
the end of the month.
6. GSE has no minimum inventory requirement. The policy is to purchase each month on the
15th the expected sales (@ cost) for the following month. Terms of purchases are 1/10, n/30.
Purchases usually arrive on or before the 20th. GSEs policy is to take all cash discounts offered.
7. GSE is negotiating the purchase of new equipment for $127,000 to be installed in September.
Terms are 50 percent in the month before and 50 percent after the month of installation.

8. Minimum cash balance is $30,000. All borrowings are effective at the beginning of the month
and all repayments are made at the end of the month of repayment. Loans are repaid when
sufficient cash is available. The interest rate is 15 percent per year, payable at the end of each
month. Both borrowings and repayments are in multiples of $10,000. Management does not want
to borrow any more cash than is necessary and wants to repay whenever the cash on hand
exceeds the minimum requirement.
9. GSE plans to pay no dividend to stockholders.
Required
Complete schedules A through E.
2. Prepare a budgeted income statement for the third quarter and beginning and end-of-quarter
balance sheets. GSE estimates its income tax rate at 25 percent, payable in the second quarter of
the following year. (Hint: Cost of goods sold % is 59.4 %.)

QUESTION 8
MERCY COMPANY produces a single product; product X. In February 2011, The companys
management is concerning preparation of the companys master budget for next month (march 2011)
to plan its profit.
The companys management predicts sales for March 2011 and April 2011 will be $42,000 and
$48,000, respectively.
Product X are purchased to resell at a markup of 60% of cost.
Starting from March 2011 onward, 70% of the sales are cash sales. The credit sales should be
collected in the following manners :
60% collected in the month of sale
40% collected in the next month
On 1 March 2011, the company has balance of accounts receivable of $5,460. No uncollectible
amount is estimated.
To be a cushion against short of product X available for sale, the management planned to maintain
balance of inventory of product X at the end of each month at 20% of next months cost of goods
sold.
On 1 March 2011, the company has balance of inventory (Product X) of $12,960
All Product X purchases are made on credit and due within 10 days after purchased. This mean that
two-third (2/3) of the amount purchases in March 2011 is due in March 2011 and remaining one-third
(1/3) of amount purchases in March 2011 is due in April 2011.
On 1 March 2011, the company has balance of accounts payable of $5,000 which is due in March
2011 in entirety
The following selling general and administrative (SG&A) expenses are expected to incur in March
2011 :
Salaries
$ 5,800
Utilities
750
Rent (prepayment)
3,000
Gasoline
500
Advertising (prepayment)
1,200
Depreciation
1,500
Salaries and gasoline are paid for when the expense is incurred. Utilities are paid for in the
following month (the February 2011 utility bill was $720). Three-month rent was prepaid on 1
February 2011 . On 1 March 2011, an advance of $3,600 was given to an advertising agency for
3 months of promotion.
The company is subjected to 30% tax rate. No tax payment is made in March 2011 (Tax payment will
be made in May 2011).
The cash balance as at 1 March 2011 is $8,600.
Required: Prepare the cash budget and budgeted income statement

QUESTION 9
Mrs. Angela runs a children toy shop named ENJOY COMPANY. In July 2010, she is in process of
preparing her companys first cash budget to make liquidity planning.
She predicts sales for August 2010 and September 2010 will be $35,000 and $28,000, respectively.
All toys are purchased to resell at a markup of 80% of cost.

Starting from August 2010 onward, 40% of the sales are cash sales. The credit sales should be
collected in the following manners :
70% collected in the month of sale
28% collected in the next month
2% is estimated to be uncollectible in the month of sale
On 1 August 2010, customers owe the shop $350 for sales made in June 2010 and $3,150 for sales
made in July 2010 (Balance of accounts receivable as at 1 August is $350 + $3,150 = $3,500).
Angela estimated in August 2010 that the balance of receivables of $350 resulting from credit sales
in June 2010 will entirely go uncollected and all balance of receivables of $3,150 from credit sales in
July 2010 will entirely be collected in August 2010.
To be a cushion against short of toys available for sale, she planned to maintain balance of inventory
of toys at the end of each month equal to 20% of next months cost of goods sold.
The toys purchases for July are $13,125. All toys purchases are made on credit and due within 10
days after purchased. This mean that approximately two-third (2/3) of each months purchases are
paid for in the month of purchases and one-third (1/3) of each months purchases are paid for in the
month after the purchases were made.
On 1 August 2010, the company has balance of accounts payable of $3,850 whereby payments to
suppliers are due in August in entirety
The following selling general and administrative (SG&A) expenses are expected to incur in August
2010 :
Salaries
$ 2,800
Utilities
875
Rent (prepayment)
5,250
Gasoline
350
Advertising (prepayment)
875
Depreciation
1,200
Bad debt
?
Salaries and gasoline are paid for when the expense is incurred. Utilities are paid for in the following
month (the July utility bill was $787). Three-month rent was prepaid on 1 July 2010 . On 1 August
2010, an advance of $1,750 was given to an advertising agency for 2 months of promotion.
The cash balance as at 1 August 2010 is $2,625.
Required : Prepare the cash budget and budgeted income statement