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MODULE 8 - BUDGETING
THEORIES:
Basic Concepts
1. The concept of management by exception refers to managements 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.
8. A formal written statement of managements plans for the future, packaged in financial terms, is a:
A. Responsibility report.
C. Cost of production report.
B. Performance report.
D. Budget.
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.
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.
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.
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 companys 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.
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.
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
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 managements support is necessary to promote budget participation.
D. The top management should review and approve each responsibility units budget.
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.
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.
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Budgeting
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
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.
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
51. Zero-base budgeting requires managers to
A. Justify expenditures that are increases over the prior periods budgeted amount.
B. Justify all expenditures, not just increases over last years amount.
C. Maintain a full-year budget intact at all times.
D. Maintain a budget with zero increases over the prior period.
13. Zero-based budgeting:
A. involves the review of changes made to an organizations 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.
18. A systematized approach known as zero-based budgeting:
A. Classifies the budget by the prior years 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.
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.
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Budgeting
C. zero-based budgeting
D. flexible budgeting
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.
45. Flexible budgeting is a reporting system wherein the
A. Budget standards may be adjusted at managements 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.
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.
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
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.
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.
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
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.
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.
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
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
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Budgeting
Budgeting
C. indicator methods
D. a scatter diagram
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 months 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
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
Budgeting
B. P32,000
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D. P62,000
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
vi
. Montalban Companys 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 quarters 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
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. 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 months 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
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Silver Bowl Company manufactures a single product. It keeps its inventory of finished goods at 75% the coming months
budgeted sales. It also keeps its inventory of raw materials at 50% of the coming months 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
. Each unit of finished product uses 6 kilograms of raw materials. The production and inventory budgets for May 2007 are
as follows:
6
Budgeting
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
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. Violet Company manufactures a single product. It keeps its inventory of finished goods at twice the coming months
budgeted sales, inventory of raw materials at 150% of the coming months 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
. 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
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
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Budgeting
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
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
Cash collections
xx
. Obligacion Company has P299,000 in accounts receivable on January 1, 2006. Budgeted 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
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
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
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
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:
Budgeting
. 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
9
Budgeting
UNITS
11,800
12,100
11,900
11,400
12,000
12,200
PESOS
P3,540,000
3,630,000
3,570,000
3,420,000
3,600,000
3,660,000
. 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
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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
xxxiii
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:
January
February
March
April
Sales
P7,200,000
6,600,000
6,000,000
7,800,000
Purchases
P4,200,000
4,800,000
3,600,000
5,400,000
10
Budgeting
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.
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.
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.
The Atlanta Corporation has forecast the following sales for the first seven months of the year:
January
February
March
April
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,
Atlantas 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.
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xxxv
. 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
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
Purchases
P200,000
220,000
210,000
240,000
320,000
230,000
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.
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.
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).
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
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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
Budgeting
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).
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.
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.)
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.
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.
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
30,000
320,000
237,800
587,800
800,000
P1,387,800
P
93,600
400,000
504,200
390,000
P1,387,800
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
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xli
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
. 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
xlii
xliii
. The cost of goods sold for the first quarter of the coming year amounts to:
A. P363,800
C. P426,400
12
Budgeting
B. P453,600
D. P373,400
xliv
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 months sales, and on the 20th of the month for the
first half of the current months sales. The terms of all sales are 2/10, net 30. Based upon past experience, the collection of
accounts receivable is as follows:
Within the discount period
On the 30th day
Uncollectible
80%
18%
2%
Russons 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 months sales demand and to maintain a desired monthly
ending inventory of 25% of the next months sales. All purchases are on credit with terms of net/30. Russon pays for 50% of
a months purchases in the month of purchase and 50% in the month following the purchase.
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
xlvii
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
13
. 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
iii
iv
vi
vii
viii
ix
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
P520,000
140,000
660,000
130,000
P530,000
Answer: A
Cost of goods sold
Add Ending Inventory
Total available for sale
Deduct Beginning inventory
Budgeted purchases, February
P450,000
240,000
P690,000
225,000
P465,000
P750,000 x 0.6
P800,000 x 0.6 x 0.5
P450,000 x 0.5
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
Answer: A
Total payments for purchases in June
Deduct payments applicable to purchase of:
June
(P100,000 x 0.6)
May
(P200,000 x 0.30)
Payments applicable to April purchase
Credit purchase in April: P20,000 0.10
Answer: C
Budgeted sales, First Quarter
Add Required Ending Finished goods:
Total units required
Less Beginning Finished goods
Budgeted production in units
30% x 160,000
P140,000
P60,000
60,000
120,000
P 20,000
P200,000
120,000 units
48,000 units
168,000 units
36,000 units
132,000 units
Answer: C
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
. Answer: C
Beginning Inventory
Required Purchases
Direct Materials Used for Production
Desired Ending Inventory
(8000 x 3.5)
(8000 x 3)
28,000
8,000
(24,000)
12,000
. Answer: C
LLMMNNBudgeted production622,000622,000622,000Required materials per unit of product0.501.001.2Materials
required311,000622,000746,400Unit cost
P0.60
P1.70
P1.00 Peso amounts of materials used by units
produced
P186,600
P1,057,400
P746,400
xi
xii
640,000
90,000
730,000
108,000
622,000
Answer: D
Required pounds by production
Ending raw materials required
Beginning raw materials
Budgeted purchases
180,000
60,000
( 30,000)
210,000
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
Answer: D
Budgeted sales
Add Finished goods inventory, end
Total
Deduct Finished good inventory, beginning
Budgeted production
18,000
11,400
29,400
15,000
14,400
xiv
xv
xvi
Answer: D
Raw materials required by June production:
Add: Ending materials inventory
Total materials required
Deduct Beginning material inventory
Budgeted materials purchase
2,600
1,600
4,200
1,300
2,900
1,200 x 2
1,300 x 2 . 1.5
2,400 x 1.5
6,000
24,400
120,400
21,000
99,400
2,400
3,900
6,300
3,600
2,700
Answer: A
Budgeted sales
Less decrease in Finished goods inventory
Budgeted production
300,000
10,000
290,000
870,000
20,000
850,000
Answer: B
Materials required by production
Increased in materials inventory
Purchases
500,000 x 2
(50,000 40,000)
Answer: B
Materials required by 2nd Quarters production
Add: Materials inventory, end:
Total materials required
Less: Materials inventory, beginning:
Total budget purchases in kilograms
1,000,000
10,000
1,010,000
112,500
25.000
137,500
28,125
109,375
xvii
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
Cash sales (March)
0.2 x P420,000
Collections of account sales:
P 84,000
March sales:
February sales:
January sales:
Total cash from sales
xix
xx
xxi
xxii
xxiii
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
235,200
60,000
9,600
P388,800
(P80,000 x 0.6)
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
Answer: A
Collections sales of:
June:
May:
Total collections from sales
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
Answer: D
Cash sales
Collections from account sales:
January
December
November
Total cash receipts in January
P57,000
48,000
P 9,000
P30,000
P516,000
299,000
815,000
172,000
P987,000
P5,600
2,100
P7,700
P 85,500
85,000
59,500
P230,000
P 70,000
(P340,000 x 0.60)
(P50,000 x 30/40)
204,000
37,500
20,000
P331,500
xxiv
. Answer: B
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
xxv
Answer: C
Gross receivable collected months 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
P 240,000
1,350,000
96,000
76,000
P1,762,000
xxvi
. 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.
xxvii
xxviii
Answer: D
Cost of goods sold
Deduct desired decrease in inventories
Budgeted purchases
Add decrease in Accounts Payable
Budgeted payments for purchases
P1,680,000
70,000
P1,610,000
150,000
P1,760,000
Answer: A
November costs
October costs
P1,248,000
320,000
Total disbursements
xxix
P1,568,000
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
P 20,000
(P300,000 x .8 x .98) 235,200
((P300,000/1.25) x .2) 48,000
(P240,000 x .6 x .99)
(P200,000 x .4)
142,560
80,000
283,200
222,560
P80,640
xxx
. Answer: C
JanuaryFebruaryBudgeted sales11,90011,400Add: Ending inventory (130%)14,82015,600 Total26,72027,000Less:
Beginning inventory15,47014,820 Budgeted purchases (units)11,25012,180Unit purchase price
200
200
Budgeted peso purchasesP2,250,000P2,436,000
Budgeted inventories:
December 31
130% x 11,900
15,470
January 31
130% x 11,400
14,820
February 28
130% x 12,000
15,600
March 31
130% x 12,200
15,860
xxxi
xxxii
xxxiii
xxxiv
xxxv
xxxvi
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
Answer: A
Billings of December 31:
Collections with 3% discount
Collections end of January
Billings of November 30:
Total collections
Answer: B
Budgeted March sales
Add: Ending inventory units
Total units required
Less: Beginning inventory units
Budgeted purchases in units, March
P1,315,440
1,035,000
P2,350,440
266,220
237,130
P2,853,790
P2,112,660
907,500
318,600
P3,338,760
12,000
15,860
27,860
15,600
12,260
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
P14,400
12,800
P27,200
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
P24,000
17,600
41,600
60,000
30,000
45,000
30,600
P207,200
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
P 39,000
245,700
113,400
P398,100
xxxvii
Answer: B
Marketable securities purchased on:
June
July
Cumulative purchase of MS
P 5,600
126,900
P132,500
xxxviii
. Answer: A
Cash Budget (P000)
JuneJulyAugSeptCash receiptsP398.1P404.9P382.2P374.9Cash disbursements 367.5 278.0 296.5 702.5Net cash inflow
(outflow) 30.6 126.9 85.7( 327.6)Beginning cash balance 25.0 50.0 50.0 50.0Cumulative cash balance 55.6
176.9 135.7( 277.6)M/S sold (purchased) - 5.6- 126.9- 85.7 218.2Cash loan 0.0
0.0 0.0 109.4Cash
balance, endP 50.0P 50.0P 50.0P 50.0
Cash Receipts (P000)
JuneJulyAugSeptAccount sales (90%)P351.0P315.0P378.0P369.0Cash salesP 39.0P 35.0P 42.0P 41.0Collection of
accounts First month (30%) 245.7 105.3 94.5 113.4 Second month (70%) 113.4 264.6 245.7
220.5TotalP398.1P404.9P382.2P374.9
Cash Payments (P000)
JuneJulyAugSeptPurchasesP210.0P240.0P320.0P230.0First month (45%)P 99.0P 94.5P108.0P144.0Second month (55%)
110.0 121.0 115.5 132.0 Total purchases paid 209.0 215.5 223.5 276.0Labor 58.5 52.5 63.0 61.5General
overhead 10.0 10.0 10.0 10.0Interest 35.0 35.0Cash dividend 25.0Taxes 30.0 30.0Purchase of equipt.
290.0Total paymentsP367.5P278.0P296.5P702.5
xxxix
. Answer: A
Budgeted Production
JanuaryFebruaryMarchTotalSales1,700,0001,200,0001,400,0004,300,000Inventory,
end2,600,0003,400,0004,500,0004,500,000Total4,300,0004,600,0005,900,0008,800,000Inventory, beg.
(2,900,000(2,600,000(3,400,000(2,900,000Budgeted production1,400,0002,000,0002,500,0005,900,000
xl
. Answer: B
Payments for Purchases:
January
(December purchases - 1,800,000 x 0.052)
P 93,600
February
(January purchases 1,400,000 x 0.06)
84,000
March
(February purchases 2,000,000 x 0.06)
120,000
Total for the quarter
P297,600
xli
xlii
. Answer: B
Budgeted Collections on Accounts Receivable
JanuaryFebruaryMarchTotalNovember sales87,50087,500December sales116,250116,250232,500January
sales131,750131,750263,500February sales
93,00093,000Total203,750248,000224,750676,500
. Answer: C
A months sales is collected 50 percent each in the first and second month. Therefore, the accounts receivable
outstanding as of March 31 includes Marchs sales as well as 50 percent of February sales.
Februarys accounts (P186,000 x 0.5)
P 93,000
Marchs sales
217,000
Outstanding accounts receivable, March 31
P310,000
xliii
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
March
Cost of goods sold (first quarter)
xliv
xlv
P237,800
126,000
P363,800
Answer: A
Answer: B
Russon provides 25 percent of next months 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