Managerial Accounting

Budgeting Problems

Name:_______________________ Score:______________________

Problem 1
A cash budget, by quarters, is given below for a retail company (000 omitted). The company requires a
minimum cash balance of at least P5,000 to start each quarter. Fill in the missing amounts in the table
below:

Quarter
1.00 2.00 3.00 4.00 Year
Cash balance, beginning 6.00 ? ? ? ?
Add collections from customers ? ? 96.00 ? 323.00
Total cash balance 71.00 ? ? ? ?
Less Disbursements:
Purchase of inventory 35.00 45.00 ? 35.00 ?
Selling and administrative expenses ? 30.00 30.00 ? 113.00
Equipment purchases 8.00 8.00 10.00 ? 36.00
Dividends 2.00 2.00 2.00 2.00 ?
Total disbursements ? 85.00 ? ? ?
Excess (deficiency) of cash available over disbursements (2.00) ? 11.00 ? ?
Financing:
Borrowings ? 15.00 - - ?
Repayments (including interest) - - (?) (17.00) ?
Total financing ? ? ? ? ?
Cash balance, ending ? ? ? ? ?

Note: Interest will total P1,000 for the year.

Problem 2
Paasa Kasi Company has budgeted sales of 600,000 cans of diet iced tea mix in June 2016 and 750,000
cans in July. Production of the mix requires 14.5 ounces of tea and 1.5 ounces of sugar substitute. June 1
inventories of tea and sugar substitute are as follows:

Iced tea mix 24,600 cans of finished products

Tea 750 pounds
Sugar substitute 200 pounds

Paasa Kasi generally carries a finished goods inventory equal to 5% of the following month’s needs; raw
material ending inventories should equal 10% of Finished Goods Inventory. Assuming that the ending
inventory policy is met, answer the following questions.

____________1. How many cans of iced tea mix will be produced in June?

____________2. How many pounds of tea will be purchased in June?

____________3. How many pounds of sugar substitute will be purchased in June?

____________4. Tea and sugar substitute cost P 3.50 and P 0.40 per pound, respectively. What peso
amount of raw material purchases is budgeted for June?
____________5. If the company normally pays for 40 percent of its budgeted purchases during the
month of purchase and takes a 2% discount, what are budgeted cash disbursements in
June for June purchases? How much will Paasa Kasi owe for June purchases in July?
Problem 3
Hugot Inc. has projected Cost of Goods Sold for June 2011 of P1,500,00. Of this amount, P80,000
represents fixed overhead costs. Total variable costs for the company each month average 70% of sales.
The company’s cost to retail (CGS to Sales) percentage is 60%, and the company normally generates net
income equal to 15% of sales. All purchases and expenses (except depreciation) are paid 65% in the
month incurred and 35% in the following month. Depreciation is P45,000 per month.

Required:
____________6. What are Hugot Inc.’s expected sales for June?

____________7. What are Hugot Inc.’s expected variable selling and administrative costs for June?

____________8. What are Hugot Inc.’s total fixed costs? How much of this is fixed selling and
administrative cost?

____________9. Hugot Inc. normally collects 55% of its sales in the month of sale and the rest in the next
month. What are expected cash receipts and disbursements related only to June’s
transactions?

Problem 4
Nagmahal and Nasaktan Inc. sells teddy bears in walk-by kiosks in shopping malls. The company’s balance
sheet on March 31, 2016, showed the following balances related to Accounts Receivable and inventories:
Accounts Receivable P 346,000
Allowance for doubtful accounts 35,000
Inventory 208,000
Accounts payable to suppliers 455,000

The company’s controller, Alden, is making budget projections for the second quarter of 2016 and has
made the following assumptions:

• Budgeted Sales: April – 60,000 units; May – 140,000 units; June – 46,000 units
• Selling price per bear – P 12
• Cost per bear – P 8
• Expected cash collections from March 31, 2016 Accounts Receivable:
✓ In April P 36,000
✓ In May 295,000
✓ To be written off: 15,000

Other information:
➢ The Accounts Receivable balance at March 31 consists of P 36,000 from February sales and P
310,000 from March sales. For budgeting purposes, Snow estimates that P 36,000 will be collected
in April, P295,000 in May, and that the remaining P 15,000 will be written off during the second
quarter.
 ➢ 80% of sales are on credit. The remaining sales are cash sales. 25% of credit sales are collected in
the month of sale, with 55% in the month following and 18% in the second month following. The
remaining 2% are uncollectible. The company expects to write off P 15,000 of accounts receivable
during the second quarter.
➢ 30% of purchases are paid for in the month of purchase with the remainder in the month
following.
➢ The company budgets ending inventory equal to 40% of the following month’s sales in units.
July’s sales are budgeted at 30,000 units.

____________10. Sales budget for the month ending April, 2016.

____________11. Sales budget for the month ending May, 2016.

____________12. Sales budget for the quarter ending June, 2016.

____________13. Budgeted collections for the month ending April, 2016.

____________14. Budgeted collections for the month ending May, 2016.

____________15. Budgeted collections for the quarter ending June, 2016.

____________16. Compute budgeted Accounts Receivable at June 30, 2016.

____________17. Compute the estimated bad debt expense that will appear in the budgeted income

statement for the quarter ending June 30, 2016.

____________18. Compute budgeted purchases for the month ending April, 2016.

____________19. Compute budgeted purchases for the month ending May, 2016.

____________20. Compute budgeted purchases for the quarter ending June 30, 2016.

____________21. Compute budgeted cash payments for inventory for the month ending April, 2016.

____________22. Compute budgeted cash payments for inventory for the month ending May, 2016.

____________23. Compute budgeted cash payments for inventory for the quarter ending June 30, 2016.

____________24. Compute budgeted Accounts Payable at June 30, 2016.

Problem 5
Stark Co.’s projected March 31, 2016, balance sheet follows.

Assets: Liabilities and Shareholders’ Equity:

Cash P 24,000 Accounts Payable P 140,400
Accounts Receivable (net of P2,880 allowance)69,120 Common Stock 50,000
Merchandise Inventory 104,800 Retained Earnings 79,520
Plant assets (net of P120,000 Accum. Dep’n.) 72,000
Total P269,920 Total P269,920

Additional Information about the company is as follows:

➢ Expected sales for April and May are P 240,000 and P 260,000, respectively. All sales are made on
account.
➢ The monthly collection pattern from the month of sale forward is 50%, 48%, and 2% uncollectible.
Accounts Receivable and the Allowance for Uncollectibles reflect only accounts for March.
➢ Cost of goods sold s 65% of sales.
➢ Purchases each month are 60% of the current month’s sales and 30% of the next month’s
projected sales. All purchases are paid for in full in the month following purchase.
➢ Dividends of P 20,000 will be declared and paid in April 2016.
➢ Selling and administrative expenses each month are P 43,000, of which P8,000 is depreciation.
➢ Investments and borrowings must be made in P1,000 amounts.

Required:
____________25. What were March 2016 sales?
____________26. What will be budgeted cash collections for April 2016?
____________27. What will be the Merchandise Inventory balance at April 30, 2016?
____________28. What will be the projected balance in the Retained Earnings account at April 30, 2016?
____________29. If the company wishes to maintain a minimum cash balance of P16,000 , how much will
be available for investment, or be borrowed at the end of April 30, 2016?
Problem 6
Sansa’s Arrangements purchases, wholesales, and retails fresh flowers. Company estimates reveal the
following for the first three months of the company’s 2016 fiscal year:

PURCHASES SALES
June P132,000 P204,000
July 116,000 184,000
August 160,000 232,000

Sansa’s pays 60 percent of any month’s purchases in the month of purchase, receiving a 2 percent discount
on those payments. The remaining amount is paid in the following month, with no discount given. Other
monthly payments for expenses are P48,000 plus 12 percent of sales revenue. Depreciation is P8,000 per
month. Sansa’s maintains a minimum cash balance of P28,000. Borrowings and repayments must be made
in P1,000 amounts.

65% of budgeted sales are wholesale. All retail sales are for cash and all wholesale transactions are on
credit. Experience indicates the following expected collection pattern for credit sales: 25 percent in the
month of sale, 60 percent in the month following the sale, and 15 percent in the second month following
the sale. The company has no debt other than what is currently owed for purchases on account.

Required:
____________30. Give the July 31 balance for Accounts Receivable.
____________31. Give the July 31 balance for Accounts Payable.
____________32. Give the expected total cash collections in August.
____________33. Calculate the expected total cash disbursements in August.
____________34. Compute the budgeted ending cash balance for August assuming that the beginning
balance of cash was P28,470.
Problem 7
Hugot-Pa Corp. manufactures decorative, high-quality nutcrackers. Selling price of a nutcracker is full
production cost plus 25 percent (rounded to the nearest dollar). Variable production cost is P55 per unit,
and total fixed costs are P2,600,000. Fixed manufacturing costs are 80 percent of total fixed costs and are
allocated to the product based on the number of units produced. Variable selling and administrative costs
are 8 percent of sales. Variable and fixed costs are expected to increase by 15 and 7.5 percent, respectively,
next year. Estimated production and sales are 400,000 units.
____________35. What is the expected full production cost per unit of Hugot-Pa Corp.’s nutcrackers for
next year?
____________36. What is the product’s expected selling price?
____________37. What is the budgeted income before tax using selling price computed in (b)?
____________38. What is the required selling price (rounded to the nearest dollar) for the company to earn
income before tax equal to 25 percent of sales?

Problem 8
Total June 2010 sales are expected to be P450,000. Of each month’s sales, 80% is expected to be in credit.
The accounts receivable balance at May 31 is P119,600, of which P90,000 represents the remainder of May
credit sales. There are no receivables from months prior to April 2010. The collection patter of Roy’s
Catering credit sales is 70% in the month of sale, 20% in the month following sale, and 10% in the second
month following sale. Roy’s catering has no uncollectible accounts.

____________39. What were total sales for April 2010?

____________40. What were credit sales for May 2010?
____________41. What are projected cash collections for June 2010?
____________42. What is the expected balance of Accounts Receivable at June 30, 2010?