Professional Documents
Culture Documents
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.
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.
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
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
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.
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
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.
12. A variant of fiscal-year budgeting whereby a twelve-month projections into the future is
maintained at all times:
A. Forecasting.
C. Continuous budgeting.
B. Zero-based budgeting.
D. Calendar budgeting.
35. The method of budgeting which adds one months budget to the end of the plan when the
current months budget is dropped from the plan refers to
A. Long-term budget
C. Incremental budget
B. Operations budget
D. Continuous budget
49. A budget plan for annual fixed costs that arises from top management decisions directly
reflecting corporate policy.
A. Flexible budget.
C. Discretionary budget.
B. Static budget.
D. Program budget.
36. The term decision package relates to
A. comprehensive budgeting
B. zero-based 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
Budgeting
A. program budgeting
B. line budgeting
C. zero-based budgeting
D. flexible budgeting
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
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.
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.
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.
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
46. The basic difference between a master budget and a flexible budget is that a
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Budgeting
39. The procedure for setting profit objectives in which the determination of profit objectives is
subordinated to the planning, and the objectives emerge as the product of the planning itself
is the
A. a priori method
C. practical method
B. theoretical method
D. a posteriori method
A.
B.
C.
D.
40. The procedure for setting profit objectives in which management specifies a given rate of
return that it seeks to realize in the long run by means of planning toward that end is the
A. a priori method
C. pragmatic method
B. theoretical method
D. ad hoc method
50. Budgeting process in which information flows top down and bottom up is referred to as:
A. Continuous budgeting.
C. Perpetual budgeting
B. Participative budgeting
D. Joint budgeting
29. In estimating the sales volume for a master budget, which of the following techniques may
be used to improve the projections?
A. Brainstorming.
B. Statistical analysis.
C. Estimating from previous sales volume.
D. All of these are useful.
42. Which of the following is not a potential problem with participative budgeting?
A. setting standards that are either too high or too low
B. padding the budget
C. build slack into the budget
D. all of the above are potential problems
30. Using the concept of expected value in sales forecasting means that the sales forecast to be
used is
A. developed using the indicator method
B. the sum of the sales expected by individual managers
C. based on expected selling prices of the products
D. based on probabilities
31. Several sales forecasts are available from different sources and the managers have good
ideas about their likelihoods. This situation call for the use of
A. the expected value concept
C. indicator methods
B. historical analysis
D. a scatter diagram
57. Which one of the following is an external factor that would need to be considered in forming an
initial budget proposal?
A. changes in product design
B. introduction of a new product
C. competitors' actions
D. adoption of a new manufacturing process
56. Which of the following budgets provides the data for the preparation of the direct labor cost
180
Budgeting
budget?
A. Direct materials purchase budget.
B. Cash budget.
PROBLEMS:
Cost estimation formula
1
. Management has prepared a graph showing the total costs of operating branch warehouses
throughout the country. The cost line crosses the vertical axis at P400,000. The total cost
of operating one branch is P650,000. The total cost of operating ten branches is
P2,900,000. For purposes of preparing a flexible budget based on the number of branch
warehouses in operation, what formula would be used to determine budgeted costs at
various levels of activity?
A.
Y = P400,000 + P250,000X
C. Y = P650,000 + P400,000X
B.
Y = P400,000 + P290,000X
D. Y = P650,000 + P250,000X
55. The increased use of automation and less use of the work force in companies has caused a
trend towards an increase in
A. both variable and fixed costs.
B. fixed costs and a decrease in variable costs.
C. variable costs and a decrease in fixed costs.
D. variable costs and no change in fixed costs.
32. In preparing a cash budget, which of the following is normally the starting point for projecting
cash requirements?
A. Fixed assets.
C. Accounts receivable.
B. Sales.
D. Inventories.
Sales budget
Purchases budget merchandising concern
2
. PTO Company desires an ending inventory of P140,000. It expects sales of P800,000 and
has a beginning inventory of P130,000. Cost of sales is 65% of sales. Budgeted purchases
are
A. P 530,000
C. P 810,000
B. P 790,000
D. P1,070,000
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
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
B. P32,000
D. P62,000
181
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
Budgeting
640,000 units. The estimated beginning and ending finished goods inventory are 108,000
and 90,000, respectively. A production of one unit requires the following materials:
Material LL
0.50 lb. @ P0.60
Material MM
1.00 lb. @ P1.70
Material NN
1.20 lb. @ P1.00
What are the respective peso amounts of each material to be used in production during the
year?
Material LL
Material MM
Material NN
A.
P181,200
P1,026,800
P724,800
B.
P181,200
P1,026,800
P746,400
C.
P186,600
P1,057,400
P746,400
D.
P186,600
P1,057,400
P724,800
Production budget
6
. 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
7
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
11
. 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
12
. Each unit of finished product uses 6 kilograms of raw materials. The production and inventory
budgets for May 2007 are as follows:
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
Budgeting
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
13
. 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
14
. 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
15
. 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
Credit sales
183
Budgeting
19
. 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
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
Cash collections
20
. 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
21
22
23
. 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
. 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
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:
. 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
Budgeting
The sales for January, February, and March were as follows: P1,200,000, P1,400,000 and
P1,500,000, respectively. Of each months sales, 80% is on account. 60% of account
sales is collected in the month of sale, with remaining 40% collected in the following month.
What is the accounts receivable balance as of March 31, 2007?
A. P720,000
C. P587,200
B. P480,000
D. P600,000
A. 400,000
B. P280,000
C. P120,000
D. P580,000
Cash disbursements
27
. Cascades Company, a merchandising firm, is preparing its master budget and has gathered
the following data to help budget cash disbursements:
Budgeted data:
Cost of goods sold
P1,680,000
Desired decrease in inventories
70,000
Desired decrease in Accounts Payable
150,000
All of the accounts payables are for inventory purchases and all inventory items are
purchased on account. What are the estimated cash disbursements for inventories for the
budget period?
A. P1,460,000
C. P1,900,000
B. P1,600,000
D. P1,760,000
28
. 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
Cash Sales
Credit Sales
January
P600,000
P400,000
February
300,000
500,000
March
400,000
600,000
April
400,000
800,000
Lazaro estimates that 70% of the credit sales will be collected in the month following the
month of the sale, with the balance collected in the second month following the sale. Based
on these data, the balance in accounts receivable on January 31 will be increased by
Comprehensive
185
Budgeting
30
32
. 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
33
Sales
Purchases
January
P7,200,000
P4,200,000
February
6,600,000
4,800,000
March
6,000,000
3,600,000
April
7,800,000
5,400,000
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.
31
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:
Purchases:
1.
Fifty four percent of all purchases and selling, general, and administrative expenses
are paid in the month purchased and the remainder in the following month.
2.
Each months units of ending inventory is equal to one hundred thirty percent of the
next months units of sales.
3.
The cost of each unit of inventory is P200.
4.
Selling, general, and administrative expenses, of which P20,000 is depreciation, are
equal to fifteen percent of the current months sales.
November
December
January
February
March
April
PESOS
P3,540,000
3,630,000
3,570,000
3,420,000
3,600,000
3,660,000
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
. 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
186
P120,000
160,000
180,000
240,000
May
June
July
P120,000
200,000
220,000
Budgeting
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).
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.
34
36
. 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
. 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
37
38
35
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
January
February
March
April
May
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.
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.
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.
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
187
Budgeting
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.)
39
. 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
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.
40
. 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
41
. 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
42
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.
43
. The cost of goods sold for the first quarter of the coming year amounts to:
A. P363,800
C. P426,400
B. P453,600
D. P373,400
44
45
. 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
30,000
320,000
237,800
587,800
800,000
P1,387,800
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:
93,600
400,000
504,200
390,000
P1,387,800
80%
18%
2%
Budgeting
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.
46
. 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
47
48
. 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
189
. 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
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
Answer: C
Sales for three-month period:
July
August
400,000 x 1.05
September
420,000 x 1.05
Total
Inventory, September 30
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
400,000
420,000
441,000
1,261,000
370,440
Total Requirements
Less July Inventory
Budgeted Production
8
. Answer: C
Beginning Inventory
Required Purchases
Direct Materials Used for Production
Desired Ending Inventory
1,631,440
300,000
1,331,440
(8000 x 3.5)
28,000
8,000
(24,000)
12,000
(8000 x 3)
. 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
Budgeted sales in units
640,000
Add Finished goods, end
90,000
Total
730,000
Deduct Finished goods, beginning
108,000
Budgeted production
622,000
10
11
12
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
Answer: D
Raw materials required by June production:
Add: Ending materials inventory
2,600
1,600
4,200
1,300
2,900
1,200 x 2
1,300 x 2 . 1.5
6,000
24,400
120,400
21,000
99,400
2,400
3,900
15
16
2,400 x 1.5
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
17
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
18
Answer: C
Cash sales (March)
0.2 x P420,000
Collections of account sales:
March sales:
(P420,000 x 0.8 x 0.7)
February sales:
(P300,000 x 0.8 x 0.25)
January sales:
(P240,000 x 0.8 x .05)
Total cash from sales
19
20
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
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
P 84,000
235,200
60,000
9,600
P388,800
(P80,000 x 0.6)
P57,000
48,000
P 9,000
P30,000
P516,000
299,000
815,000
172,000
P987,000
21
22
23
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
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
24
. 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
25
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
26
. 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.
27
28
29
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
Total disbursements
P1,248,000
320,000
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
30
. 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
31
32
33
34
35
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
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
Answer: C
Payments for purchases:
May purchase
June purchase
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
P14,400
12,800
P27,200
P24,000
17,600
Total
Labor costs
Fixed Overhead
Interest payments
Commission (0.03 x P1,020,000)
Total disbursements
36
37
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
Answer: B
Marketable securities purchased on:
June
July
Cumulative purchase of MS
41,600
60,000
30,000
45,000
30,600
P207,200
P 39,000
245,700
113,400
P398,100
P 5,600
126,900
P132,500
38
. 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
39
. 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
40
. 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
41
. 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
42
. 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
43
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)
44
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
48
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
P 45,000
54,000
235,200
Billed July 20
July Collections
P274,400
P608,600