IV. Prepare the budgets as required. Write only in the space provided. Write legibly.

Use only blue or

blank ink on final figures. (30 points)

Let’s End This Company manufactures and sells pesticides. Let’s End This expects to sell next year, in 2018:

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Units
2,000,000 6,000,000 6,000,000 2,000,000
Unit Selling Price ₱0.70 ₱0.70 ₱0.80 ₱0.80

Required:
1. Construct a sales budget for Let’s End This pesticide line for the coming year. Show total sales by
quarter and in total for the year. (2 points)

2. Construct a production budget assuming Let’s End This desired ending inventory of pesticide is
equal to 5% of the next period’s sales. Further, assume that the budgeted unit sales in Quarter 1,
2019, equalled 500,000 and that the beginning inventory for Quarter 1, 2017, met the inventory
rule. Construct a production budget for Let’s End This showing units produced by quarter and in
total for the year. (2 points)

3. Let’s End This’ desired ending inventory of raw materials was equal to 2% of the next period’s
production needs. Further, assume that the budgeted production for Quarter 1, 2019, equalled
500,000 sacks, and that the beginning inventory of materials for Quarter 1, 2018, met the inventory
rule. Construct a direct materials purchases budget showing pounds purchased and purchase cost
by quarter and in total for the year. (2 points)

4. Each sack requires 0.05 direct labor hour; direct labor is paid P15 per direct labor hour. Prepare a
direct labor budget. Show hours and cost for each quarter and in total for the year. (2 points)

5. Variable overhead is P6 per direct labor hour. Fixed overhead is budgeted at P60,000 per quarter
(P35,000 for supervision, P20,000 for depreciation, and P5,000 for rent). Construct an overhead
budget for the Let’s End This pesticide line for the coming year. Show total amounts by quarter and
in total for the year. (2 points)

6. Prepare an ending finished goods inventory budget for Let’s End This for the year. (2 points)

7. Prepare a cost of goods sold budget for Let’s End This for the year 2018. (2 points)

8. Construct a marketing expense budget for Let’s End This’ concrete block line for the coming year.
Show total amounts by quarter and in total for the year. (2 points)
Let’s End This’ only marketing expense is a P0.75 commission per unit (sack) sold. Fixed marketing
expenses for each quarter include the following:

Salaries 15,000
Depreciation 3,000
Travel 1,000
Advertising expense is P8,000 in Quarters 2 and 4 and P5,000 for Quarters 1 and 3.

9. Let’s End This has no variable administrative expense. Fixed administrative expenses for each
quarter include the following:
Salaries 35,000
Insurance 4,000
Depreciation 12,000
Travel 2,000

Construct an administrative expense budget for Let’s End This’ pesticide line for the coming year. Show
total amounts by quarter and in total for the year. (2 points)

10. Construct a budgeted income statement for Let’s End This Company for the coming year. (4 points)
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 11. Prepare a cash budget for Let’s End This Company for each quarter of the coming year given below
assumptions: (8 points)
a. In Let’s End This’ experience, 40% of sales are paid in cash. Of the sales on account, 60%
are collected in the quarter of the sale, 35% are collected in the quarter following the sale
while 5% are uncollectible (note: related expense is recorded in the quarter of the sale).
Total sales for the fourth quarter of 2017 totalled P6,000,000.
b. Let’s End This requires a P100,000 minimum cash balance for the end of each quarter. On
December 31, 2017, the cash balance was P150,000.
c. Money can be borrowed and repaid in multiples of P100,000. Interest is 12% per year.
Interest payments are made only for the amount of the principal being repaid. All
borrowing takes place at the beginning of a quarter, and all repayment takes place at the
end of a quarter.
d. All materials are purchased on account; 80% of purchases are paid for in the quarter of
purchase. The remaining 20% are paid in the following quarter. The purchases for the
fourth quarter of 2017 were P1,000,000.
e. Budgeted depreciation is P20,000 per quarter for overhead; P3,000 for marketing expense;
and P12,000 for administrative expense.
f. The capital budget for 2018 revealed plans to purchase additional equipment for P200,000
in the second quarter. The acquisition will be financed with operating cash, supplementing
it with short-term loans as necessary.
g. Corporate income taxes of P35,000 will be paid at the end of the fourth quarter.

ma1/final dq/1701/scs Page 2

 Sales Budget
For the Year Ended December 31, 2018

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Units
Unit Selling Price
Sales

Production Budget
For the Year Ended December 31, 2018

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Unit sales
Desired ending inventory
Total needed
Less: Beginning inventory
Units produced

ma1/final dq/1701/scs Page 3

 Direct Materials Purchases Budget
For the Year Ended December 31, 2018

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Units produced
Direct materials per unit
Production needs (sacks)
Desired ending inventory (sacks)
Total needed
Less: Beginning inventory
Units produced
Cost per sack
Total purchase cost

Direct Labor Budget

For the Year Ended December 31, 2018

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Units produced
Direct labor per unit
Direct labor hours needed
Cost per direct labor hour
Total direct labor cost

ma1/final dq/1701/scs Page 4

 Overhead Budget
For the Year Ended December 31, 2018

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Budgeted direct labor hours
Variable overhead rate
Budgeted variable overhead
Budgeted fixed overhead
Total overhead cost

Ending Finished Goods Inventory Budget

For the Year Ended December 31, 2018

Unit costs:
Direct materials
Direct labor
Overhead
Budgeted varible overhead
Budgeted fixed overhead
Total cost per unit

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 Cost of Goods Sold Budget
For the Year Ended December 31, 2018
Direct materials
Direct labor
Overhead
Total manufacturing cost
Add: Beginning inventory, finished
goods
Less: Ending inventory, finished goods
Cost of goods sold

Marketing Expense Budget

For the Year Ended December 31, 2018

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Budgeted unit sales
Unit variable marketing expense
Total variable marketing expense
Fixed marketing expense:
Salaries
Depreciation
Travel
Advertising
Total fixed expense
Total marketing expense

ma1/final dq/1701/scs Page 6

 Administrative Expense Budget
For the Year Ended December 31, 2018

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Salaries
Insurance
Depreciation
Travel
Total administrative expense

Let’s End This Company

Budgeted Income Statement
For the Year Ended December 31, 2018

Total
Sales
Less: Cost of goods sold
Gross margin
Less: Operating Expenses

Operating income
Less: Interest expense*
Less: Income taxes
Net income

ma1/final dq/1701/scs Page 7

 Cash Budget
For the Year Ended December 31, 2018

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Beginning balance
Collections:
Cash sales
Received on account:
Current quarter sales
Prior quarter sales
Total cash available

Disbursements:
Payments for purchases:
Current quarter sales
Prior quarter purchases
Direct labor
Overhead
Marketing expense
Administrative expense
Income tax
Equipment
Total disbursements
Minimum cash balance
Total cash needs
Excess (deficiency)
Financing:
Borrowings
Repayments
Interest
Total financing
Add: Minimum cash balance
Ending cash balance

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