Budgeting

MODULE 8 - BUDGETING 5. Which of the following does not contribute to an effective budgeting?
A. Top management is involved in budgeting.
THEORIES: B. To give each manager a free hand in the preparation of the budget, the data within the master
Basic Concepts budget are flexible.
1. The concept of “management by exception” refers to management’s consideration of C. The organization is divided into responsibility units.
A. only those items that vary materially from expectations. D. There is communication of results.
B. only rare events.
C. samples selected at random. 6. The budgets that are based on a very high levels of performance, like expected costs using ideal
D. only significant unfavorable deviations. standards,
A. assist in planning the operations of the company
8. A formal written statement of management’s plans for the future, packaged in financial terms, is a: B. stimulate people to perform better than they ordinarily would
A. Responsibility report. C. Cost of production report. C. are helpful in evaluating the performance of managers
B. Performance report. D. Budget. D. can lead to low levels of performance

2. Budgets are related to which of the following management functions? 7. Which of the following statements is incorrect?
A. Planning C. Control A. An imposed budget is the same as a participative budget.
B. Performance evaluation D. all of these B. Preparation of the budget would be the responsibility of each responsibility unit.
C. Top management’s support is necessary to promote budget participation.
22. Budgeting supports the planning process by encouraging all of the following activities except: D. The top management should review and approve each responsibility unit’s budget.
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. 9. The primary role of the budget director and the budgeting department is to
C. Improving overall decision making by considering all viewpoints, options, and cost control programs. A. Settle disputes among operating executives during the development of the annual operating
D. Directing and coordinating operations during the period. plan.
B. Develop the annual profit plan by selecting the alternatives to be adopted form the
3. Which of the following advantages does a budget mostly provide? suggestions submitted by the various operating segments.
A. Coordination is increased. C. Compile the budget and manage the budget process.
B. Planning is emphasized. D. Justify the budget to the corporate planning committee of the board of directors.
C. Communication is continuous.
D. Comparison of actual versus budgeted data. 10. The primary variable affecting active participation and commitment to the budget and the control
system is
24. Which of the following is NOT an advantage of budgeting? A. Management efforts to achieve the budget rather than optimize results.
A. It forces managers to plan. B. The rigid adherence to the budget without recognizing changing conditions.
B. It provides resource information that can be used to improve decision making. C. Top management involvement in support of the budget.
C. It aids in the use of resources and employees by setting a benchmark that can be used for the subsequent evaluation of D. The opportunity budgeting gives to risk-taker managers for department growth.
performance.
D. It provides organizational independence. 12. A variant of fiscal-year budgeting whereby a twelve-month projections into the future is maintained
at all times:
4. Which of the following is least likely a reason why a company prepares its budget? A. Forecasting. C. Continuous budgeting.
A. To provide a basis for comparison of actual performance B. Zero-based budgeting. D. Calendar budgeting.
B. To communicate the company’s plans throughout the entire business organization
C. To control income and expenditure in a particular period. 35. The method of budgeting which adds one month’s budget to the end of the plan when the current
D. To make sure the company expands its operations. month’s budget is dropped from the plan refers to
A. Long-term budget C. Incremental budget
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B. Operations budget D. Continuous budget A. involves the review of changes made to an organization’s original budget.
B. does not provide a summary of annual projections.
27. A continuous budget C. involves the review of each cost component from a cost/benefit perspective.
A. is a budget that is revised monthly or quarterly. D. emphasizes the relationship of effort to projected annual revenues.
B. is a medium term plan that consists of more than 2 years’ projections.
C. is appropriate only for use of a not-for-profit entity. 18. A systematized approach known as zero-based budgeting:
D. works best for an entity that can reliably forecast events a year or more into the future. A. Classifies the budget by the prior year’s activity and estimates the benefits arising from each
activity.
37. “Incremental budgeting” refers to B. Commence with either the current level of spending or projected whichever is lower.
A. line-by-line approval of expenditures C. Presents planned activities for a period of time but does not present a firm commitment.
B. setting budget allowances based on prior year expenditures D. Divides the activities of individual responsibility centers into a series of packages that are
C. requiring top management approval of increases in budgets prioritized.
D. using incremental revenues and costs in budgeting
20. Which of the following statements about Zero-based budgeting is incorrect?
49. A budget plan for annual fixed costs that arises from top management decisions directly reflecting corporate policy. A. All activities in the company are organized into break-up units called packages.
A. Flexible budget. C. Discretionary budget. B. All costs have to be justified every budgeting period.
B. Static budget. D. Program budget. 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.
36. The term “decision package” relates to
A. comprehensive budgeting C. program budgeting 34. Budgeting expenditures by purpose is called
B. zero-based budgeting D. line budgeting A. program budgeting C. zero-based budgeting
B. line budgeting D. flexible 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. 28. A static budget is not appropriate in evaluating a manager's effectiveness if a company has
A. the incremental approach C. the baseline approach A. substantial fixed costs.
B. the zero-based approach D. both a and b are true B. substantial variable costs.
C. planned activity levels that match actual activity levels.
11. The process of developing budget estimates by requiring all levels of management to estimate sales, production, and other D. no variable costs.
operating data as though operations were being initiated for the first time is referred to as:
A. Forecasting. C. Continuous budgeting. 45. Flexible budgeting is a reporting system wherein the
B. Zero-based budgeting. D. Program budgeting. A. Budget standards may be adjusted at management’s discretion.
B. Planned level of activity is adjusted to the actual level of activity before the performance
38. Which of the following is a contemporary approach to budgeting? report is prepared.
A. incremental approach C. baseline approach C. Reporting dates vary according to the managerial levels of the users.
B. zero-based approach D. both a and b are true D. Packages of activities vary from period to period.

51. Zero-base budgeting requires managers to 15. A budget that presents the plan for a range of activity so that the plan can be adjusted for changes
A. Justify expenditures that are increases over the prior period’s budgeted amount. in activity levels is referred to as:
B. Justify all expenditures, not just increases over last year’s amount. A. Zero-based budgeting.
C. Maintain a full-year budget intact at all times. B. Continuous budgeting.
D. Maintain a budget with zero increases over the prior period. C. Flexible budgeting.
D. Program planning and budgeting system.
13. Zero-based budgeting:
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16. A flexible budget is D. being incongruent with participative budgeting

A. one that can be changed whenever a manager so desires
B. adjusted to reflect expected costs at the actual level of activity 43. Budget slack is a condition in which
C. one that uses the formula total costs = cost per unit x units produced A. Demand is low at various times of the year
D. the same as a continuous budget B. Excess machine capacity exists in some areas of the plant
C. There is an intentional overestimate of expenses or an underestimate of revenues
26. A series of budgets for varying levels of activity is a: D. Managers grant favored employees extra time-off
A. Variable cost budget. C. Master budget.
B. Flexible budget. D. Zero-based budget. 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
48. If a company wishes to establish a factory overhead budget system in which estimated costs can be derived directly from A. a priori method C. practical method
estimates of activity levels, it should prepare a B. theoretical method D. a posteriori method
A. flexible budget. C. Discretionary budget.
B. Program budget. D. Manufacturing budget. 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
46. The basic difference between a master budget and a flexible budget is that a A. a priori method C. pragmatic method
A. Flexible budget considers only variable costs but a master budget considers all costs. B. theoretical method D. ad hoc method
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. 50. Budgeting process in which information flows top down and bottom up is referred to as:
D. Master budget is based on one specific level of production and a flexible budget can be prepared for any production level A. Continuous budgeting. C. Perpetual budgeting
within a relevant range B. Participative budgeting D. Joint budgeting

47. Which of the following is a difference between a static budget and a flexible budgets? 42. Which of the following is not a potential problem with participative budgeting?
A. A flexible budget includes only variable costs; a static budget includes only fixed costs. A. setting standards that are either too high or too low
B. A flexible budget includes all costs, a static budget includes only fixed costs. B. padding the budget
C. A flexible budget gives different allowances for different levels of activity, a static budget does not. C. build slack into the budget
D. There is no difference between the two. D. all of the above are potential problems

17. A system that classifies budget requests by activity and estimates the benefits arising from each activity: 33. The ideal financial planning process would be
A. Incremental budgeting system. A. top-down planning.
B. Static budgeting system. B. bottom-up planning.
C. Program planning and budgeting system. C. a combination of top-down and bottom-up planning.
D. Participative system. D. None of the above

21. A budget that identifies revenues and costs with an individual controlling their incurrence is 44. A common starting point in the budgeting process is
A. Master budget C. Product budget A. expected future net income. C. to motivate the sales force.
B. Responsibility budget D. None of the above B. past performance. D. a clean slate, with no expectations.

25. The difference between an individual's submitted budget projection and his or her best estimate of the item being projected is 57. Which one of the following is an external factor that would need to be considered in forming an initial
an example of budget proposal?
A. padding the budget A. changes in product design
B. adhering to zero-based budgeting assumptions B. introduction of a new product
C. creating budgetary slack C. competitors' actions
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D. adoption of a new manufacturing process

55. The increased use of automation and less use of the work force in companies has caused a trend
14. Operating budgets are towards an increase in
A. a forecast of expected operating expenses. A. both variable and fixed costs.
B. a forecast of operating expenses and related revenues. B. fixed costs and a decrease in variable costs.
C. a forecast of units of production. C. variable costs and a decrease in fixed costs.
D. concerned with the income-generating activities of a firm. D. variable costs and no change in fixed costs.

54. What is the proper preparation sequencing of the following budgets? 32. In preparing a cash budget, which of the following is normally the starting point for projecting cash
1. Budgeted Balance Sheet requirements?
2. Sales Budget A. Fixed assets. C. Accounts receivable.
3. Selling and Administrative Budget B. Sales. D. Inventories.
4. Budgeted Income Statement
A. 1, 2, 3, 4 C. 2, 3, 4, 1 52. Recognition of the many uncertainties in budgeting is exemplified by companies normally
B 2, 3, 1, 4 D. 2, 4, 1, 3 A. forecasting sales
B. establishing minimum required cash balances
29. In estimating the sales volume for a master budget, which of the following techniques may be used to improve the C. forecasting only fixed costs
projections? D. omitting expected dividend payments from budgeted disbursements
A. Brainstorming.
B. Statistical analysis. 19. Which of the following statements is True?
C. Estimating from previous sales volume. A. Under zero-based budgeting, a manager is required to start at zero budget levels each period,
D. All of these are useful. as if the programs involved were being initiated for the first time.
B. The primary purpose of the cash budget is to show the expected cash balance at the end of the
30. Using the concept of ‘expected value” in sales forecasting means that the sales forecast to be used is budget period.
A. developed using the indicator method C. Budget data are generally prepared by top management and distributed downward in an
B. the sum of the sales expected by individual managers organization.
C. based on expected selling prices of the products D. The budget committee is responsible for preparing detailed budget figures in an organization.
D. based on probabilities
23. Which of the following is a valid statement?
31. Several sales forecasts are available from different sources and the managers have good ideas about their likelihoods. This A. Responsibility budget identifies revenue and costs with the individual responsible for their
situation call for the use of incurrence.
A. the expected value concept C. indicator methods B. The best way to establish budget figures is to use last year’s actual cost and activity data as this
B. historical analysis D. a scatter diagram year’s budget estimates.
C. A sales budget and a sales forecast are the same thing.
53. An overly optimistic sales budget may result in D. The primary purpose of the cash budget is to show the expected cash balance at the end of the
A. increases in selling prices late in the year. budget period.
B. insufficient inventories.
C. increased sales during the year. PROBLEMS:
D. excessive inventories. Cost estimation formula
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. Management has prepared a graph showing the total costs of operating branch warehouses
56. Which of the following budgets provides the data for the preparation of the direct labor cost budget? throughout the country. The cost line crosses the vertical axis at P400,000. The total cost of
A. Direct materials purchase budget. C. Sales budget. operating one branch is P650,000. The total cost of operating ten branches is P2,900,000. For
B. Cash budget. D. Production budget. purposes of preparing a flexible budget based on the number of branch warehouses in operation,
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what formula would be used to determine budgeted costs at various levels of activity? The desired monthly ending inventory in units of finished product is 80% of the next month’s
A. Y = P400,000 + P250,000X C. Y = P650,000 + P400,000X estimated sales.
B. Y = P400,000 + P290,000X D. Y = P650,000 + P250,000X 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
Sales budget of direct materials in the inventory on June 30.
Purchases budget – merchandising concern How many units should be produced for the three-month period ending September 30?
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. PTO Company desires an ending inventory of P140,000. It expects sales of P800,000 and has a beginning inventory of A. 1,260,000 C. 1,331,440
P130,000. Cost of sales is 65% of sales. Budgeted purchases are B. 1,328,000 D. 1,424,050
A. P 530,000 C. P 810,000
B. P 790,000 D. P1,070,000 Ending inventory budget
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. If the required direct materials purchases are 8,000 pounds and the direct materials required for
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. Calypso Co. has projected sales to be P600,000 in January, P750,000 in February, and P800,000 in March. Calypso wants to production is three times the direct materials purchases, and the beginning direct materials are
have 50% of next month’s sales needs on hand at the end of a month. If Calypso has an average gross profit of 40%, what are three and a half times the direct materials purchases, what are the desired ending direct material
the February 28 purchases? in pounds?
A. P465,000 C. P775,000 A. 20,000 C. 12,000
B. P310,000 D. P428,000 B. 4,000 D. 32,000
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. Blue Company budgeted purchases of P100,000. Cost of sales was P120,000 and the desired ending inventory was P42,000. Raw materials usage budget
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The beginning inventory was . Minerva Company sells a single product. Budgeted sales for the year are anticipated to be
A. P20,000 C. P42,000 640,000 units. The estimated beginning and ending finished goods inventory are 108,000 and
B. P32,000 D. P62,000 90,000, respectively. A production of one unit requires the following materials:
Material LL 0.50 lb. @ P0.60
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. The payment schedule of purchases made on account is: 60% in the time period of purchase, 30% in the following time Material MM 1.00 lb. @ P1.70
period, and 10% in the subsequent time period. Total credit purchases were P200,000 in May, and P100,000 in June. Total Material NN 1.20 lb. @ P1.00
payments on credit purchases were P140,000 in June. What were the credit purchases in the month of April? What are the respective peso amounts of each material to be used in production during the year?
A. P200,000 C. P145,000 Material LL Material MM Material NN
B. P100,000 D. P215,000 A. P181,200 P1,026,800 P724,800
B. P181,200 P1,026,800 P746,400
Production budget C. P186,600 P1,057,400 P746,400
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. Montalban Company’s sales budget shows the following expected sales for the following year: D. P186,600 P1,057,400 P724,800
Quarter Units
First 120,000 Raw materials purchases budget
Second 160,000 x
. If there were 30,000 pounds of raw material on hand on January 1, 60,000 pounds are desired for
Third 90,000 inventory at December 31, and 180,000 pounds are required for annual production, how many
Fourth 110,000 pounds of raw material should be purchased during the year?
Total 480,000 A. 150,000 pounds C. 120,000 pounds
The inventory at December 31 of the prior year was budgeted at 36,000 units. The quantity of finished goods inventory at the B. 240,000 pounds D. 210,000 pounds
end of each quarter is to equal 30% of the next quarter’s budgeted sales of units.
How much should the production budget show for units to be produced during the first quarter? xi
. Silver Bowl Company manufactures a single product. It keeps its inventory of finished goods at 75%
A. 48,000 C. 132,000 the coming month’s budgeted sales. It also keeps its inventory of raw materials at 50% of the coming
B. 96,000 D. 144,000 month’s 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
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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.
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July would be for the fiscal year of June 1, 2006 through May 31, 2007.
A. 1,525 pounds C. 2,550 pounds June 1, 2006 May 31, 2007
B. 2,900 pounds D. 3,050 pounds Raw material* 40,000 50,000
Work-in-process 10,000 10,000
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. Each unit of finished product uses 6 kilograms of raw materials. The production and inventory budgets for May 2007 are as Finished goods 80,000 50,000
follows: *Two (2) units of raw material are needed to produce each unit of finished product.
Beginning Inventory: If 500,000 finished units were to be manufactured during the 2006-2007 fiscal year by Strama
Finished goods 15,000 units Company, the units of raw material needed to be purchased would be
Raw materials 21,000 kg. A. 1,000,000 units C. 1,020,000 units
Budgeted unit sales 18,000 units B. 1,010,000 units D. 990,000 units
Planned ending inventory
Finished goods 11,400 units xvi
. Diliman Corporation includes the following quarterly budget for production:
Raw materials 24,400 kg.
Quarter Production
During the production process, it is usually found that 10% of production units are scrapped as defective and this loss occurs
First 60,000 units
after the raw materials have been placed in process.
Second 45,000 units
How many kilograms of raw materials should be purchased in June?
Third 40,000 units
A. 89,800 C. 96,000
Fourth 65,000 units
B. 98,440 D. 99,400
Each unit of product requires 2.5 kilograms of direct materials. The company begins each quarter
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. Violet Company manufactures a single product. It keeps its inventory of finished goods at twice the coming month’s budgeted with inventory of direct materials equal to 25 percent of the total quarter’s material requirements.
sales, inventory of raw materials at 150% of the coming month’s budgeted production requirements. Each unit of product What is the budgeted purchases of materials for the second quarter?
requires two pounds of materials. The production budgets in units consist of the following:. A. 113,750 C. 46,250
May 1,000 B. 109,375 D. 112,500
June 1,200
July 1,300 Indirect labor costs
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August 1,600 . Namuco, Inc. uses flexible budgeting for cost control. During the month of September, Namuco,
Raw material purchases in June would be Inc. produced 14,500 units of finished goods with indirect labor costs of P25,375. Its annual
A. 2,600 pounds C. 2,400 pounds master budget reflects an indirect labor costs, a variable cost, of P360,000 based on an annual
B. 1,800 pounds D. 2,700 pounds production of 200,000 units. In the preparation of performance analysis for the month of
September, how much flexible budget should be allowed for indirect labor costs?
A. P30,000 C. P25,375
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. Sales Company is budgeting sales of 300,000 units of its only product for the coming year. B. P29,167 D. P26,100
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: Cash receipts budget
Actual, Jan. 1 Budgeted, Dec 31 Sales
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Finished goods 60,000 50,000 . Generous Company began its operations on January 1 of the current year. Budgeted sales for the
Material Q 80,000 60,000 first quarter are P240,000, P300,000, and P420,000, respectively, for January, February and
Material L 88,000 96,000 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
How many pounds of Material Q is Sales planning to buy during the coming year?
following the sale, and the remainder in the following month.
A. 850,000 C. 862,000
How much should Generous receive from sales in March?
B. 890,000 D. 908,000
A. P304,800 C. P388,800
xv B. 294,000 D. P295,200
. Strama Company prepares its budgets on annual basis. The following beginning and ending inventory unit levels are planned
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The estimated total cash collections during the fourth calendar quarter from sales made on open
Credit sales account during the fourth calendar quarter would be
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. Mendrez Company has a collection schedule of 60% during the month of sales, 15% the following month, and 15% A. P172,500 C. P265,400
subsequently. The total credit sales in the current month of September were P80,000 and total collections in September were B. P230,000 D. P251,400
P57,000. What were the credit sales in July?
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A. P90,000 C. P45,000 . The Le Amore Company had the following budgeted sales for the first half of the current year:
B. P30,000 D. P32,000 Cash Sales Credit Sales
January P70,000 P340,000
Cash collections February 50,000 190,000
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. Obligacion Company has P299,000 in accounts receivable on January 1, 2006. Budgeted sales for January are P860,000. March 40,000 135,000
Obligacion expects to sell 20% of its merchandise for cash. Of the remaining sales, 75% are expected to be collected in the April 35,000 120,000
month of sale and the remainder the following month. May 45,000 160,000
The January cash collections from sales are: June 40,000 140,000
A. P815,000 C. P471,000
B. P691,000 D. P987,000 The company is in the process of preparing a cash budget and must determine the expected cash
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collections by month. To this end, the following information has been assembled:
. Adel Company has the following sales forecasts for the selected three-month period in 2007:
Month Sales Collections on sales: 60% in month of sale
April P12,000 30% in month following sale
May 7,000 10% in second month following sale
June 8,000 The accounts receivable balance on January 1 of the current year was P70,000, of which P50,000
Seventy percent of sales are collected in the month of the sale, and the remainder is collected in the following month. represents uncollected December sales and P20,000 represents uncollected November sales.
Accounts receivable balance (April 1, 2007) P10,000 The total cash collected by Le Amore Company during the month of January would be:
Cash balance (April 1, 2007) 5,000 A. P410,000 C. P344,000
Minimum cash balance is P5,000. Cash can be borrowed in P1,000 increments from the local bank (assume no interest B. P254,000 D. P331,500
charges).
How much cash would be collected in June from sales? Accounts receivable balance
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A. P 7,700 C. P 8,000 . As of January 1, 2007, the Liberal Sales Company had an account receivable of P500,000. The
B. P 8,500 D. P10,000 sales for January, February, and March were as follows: P1,200,000, P1,400,000 and P1,500,000,
respectively. Of each month’s sales, 80% is on account. 60% of account sales is collected in the
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. The Avelina Company has the following historical pattern on its credit sales. month of sale, with remaining 40% collected in the following month.
70 percent collected in month of sale What is the accounts receivable balance as of March 31, 2007?
15 percent collected in the first month after sale A. P720,000 C. P587,200
10 percent collected in the second month after sale B. P480,000 D. P600,000
4 percent collected in the third month after sale
2 percent uncollectible Credit to accounts receivable
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The sales on open account have been budgeted for the last six months of 2007 are shown below: . Ironman Company is preparing its cash budget for the month ending November 30. The following
July P 60,000 information pertains to Ironman’s past collection experience from its credit sales:
August 70,000 Current month’s sales 12%
September 80,000 Prior month’s sales 75%
October 90,000 Sales two months prior to current month 6%
November 100,000 Sales three months prior to current month 4%
December 85,000 Cash discounts (2/30, net/90) 2%
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Doubtful accounts 1% manufacturing costs in the month of November are:

Credit sales: A. P1,568,000 C. P1,664,000
November – estimated P2,000,000 B. P1,952,000 D. P1,856,000
October 1,800,000
September 1,600,000 Ending cash balance
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August 1,900,000 . Albania Company expects its June sales to be P300,000, which is 25% higher than its May sales.
How much is the estimated credit to Accounts Receivable as a result of collections expected during November? Purchases were P200,000 in May and are expected to be P240,000 in June. All sales are on credit
A. P1,730,200 C. P1,762,000 and are collected as follows: 80% in the month of the sale and 20% in the following month. All
B. P1,757,200 D. P1,802,000 payments in the month of sales are given 2% discount. Sixty percent of purchases are paid in the
month of purchase to take advantage of purchase term of 1/10, n/40. The remaining amount is
Increase in accounts receivable paid in the following month. The beginning cash balance on June 1 is P20,000. The ending cash
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. Lazaro Company will open a new store on January 1. Based on experience from its other retail outlets, Lazaro is making the balance on June 30 would be:
following sales projections: A. P64,160 C. P80,640
B. P73,000 D. P85,440
Cash Sales Credit Sales
January P600,000 P400,000 Comprehensive
February 300,000 500,000 Question Nos. 30 through 33 are based on the following information:
March 400,000 600,000 Apollo Merchandiser asks your services to develop cash and other budget information for the first
April 400,000 800,000 quarter of 2007. In December 31, the store had the following balance:
Cash P 55,000
Lazaro estimates that 70% of the credit sales will be collected in the month following the month of the sale, with the balance
Accounts receivable 4,370,000
collected in the second month following the sale. Based on these data, the balance in accounts receivable on January 31 will
Inventories 3,094,000
be increased by
Accounts payable 1,330,550
A. 400,000 C. P120,000
B. P280,000 D. P580,000
The following information are relevant to 2007 operations:
Sales:
Cash disbursements
xxvii a. Each month’s sales are billed on the last day of the month.
. Cascades Company, a merchandising firm, is preparing its master budget and has gathered the following data to help budget
b. Customers are allowed a 3 percent discount if payment is made within 10 days
cash disbursements:
after the billing date. Receivables are booked gross.
Budgeted data:
c. Sixty percent of the billings are collected within the discount period, twenty-five
Cost of goods sold P1,680,000
percent are collected by the end of the month, nine percent are collected by the end of the
Desired decrease in inventories 70,000
second month, and six percent are considered entirely uncollectible.
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
Purchases:
estimated cash disbursements for inventories for the budget period?
1. Fifty four percent of all purchases and selling, general, and administrative expenses are
A. P1,460,000 C. P1,900,000
paid in the month purchased and the remainder in the following month.
B. P1,600,000 D. P1,760,000
2. Each month’s units of ending inventory is equal to one hundred thirty percent of the next
xxviii month’s units of sales.
. Albatross Company started its commercial operations on September 30 of the current year. Projected manufacturing costs
3. The cost of each unit of inventory is P200.
for the first three months of operations are P1,568,000, P1,952,000, and P2,176,000, respectively. Depreciation, insurance,
4. Selling, general, and administrative expenses, of which P20,000 is depreciation, are equal
and property taxes represent P288,000 of the estimated manufacturing costs. Insurance was paid on September 30, and
to fifteen percent of the current month’s sales.
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
Actual and projected sales are as follows:
184
 Budgeting

UNITS PESOS January P120,000 May P120,000

November 11,800 P3,540,000 February 160,000 June 200,000
December 12,100 3,630,000 March 180,000 July 220,000
January 11,900 3,570,000 April 240,000
February 11,400 3,420,000
March 12,000 3,600,000 Monthly material purchases are set equal to 20 percent of forecasted sales for the next month. Of the total
April 12,200 3,660,000 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
xxx debt will be P45,000 for both March and June. Finally, Atlanta’s sales force will receive a 3 percent
. The respective amounts of budgeted purchases for the months of January and February are:
commission on total sales for the first six months of the year, to be paid on June 30.
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 xxxiv
. How much will be paid in the month of January for the purchase of materials?
xxxi A. P 27,200 C. P137,856
. The budgeted cash disbursements for the month of February are:
B. P117,200 D. P 33,600
A. P2,929,000 C. P2,949,000
B. P2,873,790 D. P2,853,790 xxxv
. How much does Atlanta plan to disburse in the month of June?
xxxii A. P 41,600 C. P207,200
. The amount of cash collected from sales during the month of January is:
B. P100,000 D. P117,200
A. P3,338,760 C. P3,404,100
B. P3,551,160 D. P3,556,560
Question Nos. 36 through 38 are based on the following:
xxxiii Super Sales’ actual sales and purchases for April and May are shown here along with forecasted sales
. The number of units to be purchased during the month of March is:
and purchases for June through September.
A. 15,860 C. 12,000
B. 12,260 D. 15,600
Sales Purchases
Rajah Enterprises is a growing retailer of home care products. During the first four months of the following year, it forecasts the April (Actual) P390,000 P200,000
following sales and purchases: May (Actual) 420,000 220,000
June (forecast) 390,000 210,000
July (forecast) 350,000 240,000
Sales Purchases
August (forecast) 420,000 320,000
January P7,200,000 P4,200,000
September (forecast) 410,000 230,000
February 6,600,000 4,800,000
March 6,000,000 3,600,000
April 7,800,000 5,400,000 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
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 pays for 45 percent of its purchases in the month after purchase and 55 percent two months after.
sales are deemed uncollectible.
Labor expense equals 15 percent of the current month's sales. General overhead expense equals
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.
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
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
is a scheduled purchase for cash of an equipment, P290,000 in September.
be paid during the month of May will be P1,440,000 and the cash balance by May 1 is P2,200,000.
Super Sales’ ending cash balance in May is P25,000. The minimum desired cash balance is P20,000.
The Atlanta Corporation has forecast the following sales for the first seven months of the year:
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
185
 Budgeting

P20,000). 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.
xxxvi
. During the month of June, Super Sales expects to receive cash from sales amounting to: Ignore the interest on any short-term borrowings. Interest on the long-term debt is paid in March, as are
A. P606,000 C. P398,100 taxes and dividends.
B. P408,900 D. P359,100
As of year-end, the Ingo Corporation balance sheet was as follows:
xxxvii
. The cumulative amount of marketable securities purchased as of July 31 amounts to: Ingo Corporation
A. P126,000 C. P143,300 Balance Sheet
B. 132,500 D. P 0 December 31, 2006
xxxviii
. The amount of loan to be obtained to maintain a balance of P50,000 cash as of September 30 will be: ASSETS
A. P109.4 C. P 9.4 Current assets:
B. P 59.4 D. P 0.0 Cash P 30,000
Accounts receivable 320,000
Question Nos. 39 through 45 are based on the following data: Inventory 237,800
The Ingo Corporation makes standard-size 2-inch fasteners, which it sells for P155 per thousand. Irine Tee, the major stockholder, Total current assets 587,800
manages the inventory and finances of the company. She estimates sales for the following months to be: Plant and equipment, net of accumulated depreciation of P200,000 800,000
Total Assets P1,387,800
January P263,500 (1,700,000 fasteners)
February P186,000 (1,200,000 fasteners) LIABILITIES AND STOCKHOLDERS’ EQUITY
March P217,000 (1,400,000 fasteners) Accounts payable P 93,600
April P310,000 (2,000,000 fasteners) Long-term debt, 8% 400,000
May P387,500 (2,500,000 fasteners) Common stock 504,200
Retained earnings 390,000
Last year Ingo Corporation's sales were P175,000 in November and P232,500 in December (1,500,000 fasteners). Total Liabilities and Stockholders’ Equity P1,387,800
xxxix
Ms. Tee is preparing for a meeting with Peninsula Banking Corporation to arrange the financing for the first quarter. Based on her . The budgeted production respective to each month of the first quarter of the coming year are:
sales forecast and the following information she has provided, you have to prepare a monthly cash budget, a monthly and quarterly A. 1,400,000; 2,000,000; 2,500,000 C. 2,500,000; 2,000,000; 1,400,000
pro forma income statement, a pro forma quarterly balance sheet, and all necessary supporting schedules for the first quarter. B. 1,400,000; 2,500,000; 2,000,000 D. 2,000,000; 1,400,000; 2,500,000
xl
Past history shows that Ingo Corporation collects 50 percent of its accounts receivable in the normal 30-day credit period (the month . The amount of accounts payable paid in March for the purchase of materials is:
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 A. P150,000 C. P104,000
general, Ms. Tee likes to keep a two-month supply of inventory in anticipation of sales. Inventory at the beginning of December was B. P120,000 D. P130,000
2,600,000 units. (This was not equal to her desired two-month supply.)
xli
. The expected cash collections on accounts receivable in the month of February are:
The major cost of production is the purchase of raw materials in the form of steel rods, which are cut, threaded, and finished. Last A. P224,750 C. P 93,000
year raw material costs were P52 per 1,000 fasteners, but Ms. Tee has just been notified that material costs have risen, effective B. P248,000 D. P186,000
January 1, to P60 per 1,000 fasteners. The Ingo Corporation uses FIFO inventory accounting. Labor costs are relatively constant at
xlii
P20 per thousand fasteners, since workers are paid on a piecework basis. Overhead is allocated at P10 per thousand units, and . The amount of accounts receivable outstanding as of March 31, 2007 is:
selling and administrative expense is 20 percent of sales. Labor expense and overhead are direct cash outflows paid in the month A. P217,000 C. P310,000
incurred, while interest and taxes are paid quarterly. B. P224,750 D. P108,500
xliii
The corporation usually maintains a minimum cash balance of P25,000, and it puts its excess cash into marketable securities. The . The cost of goods sold for the first quarter of the coming year amounts to:
186
 Budgeting

A. P363,800 C. P426,400
B. P453,600 D. P373,400
xliv
. The total cash and marketable securities as of January 31 will be:
A. P45,450 C. P91,800
B. P25,000 D. P54,450
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 month’s sales, and on the 20th of the month for the first half of the
current month’s 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 80%

On the 30th day 18%
Uncollectible 2%

Russon’s 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 month’s sales demand and to maintain a desired monthly ending
inventory of 25% of the next month’s sales. All purchases are on credit with terms of net/30. Russon pays for 50% of a month’s
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
. The budgeted peso value of Russon’s inventory on August 31 will be
A. P110,000 C. P112,000
B. P 80,000 D. P100,000
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

187
i
. 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
. Answer: A
Cost of units sold (0.65 x P800,000) P520,000
Add Desired ending inventory 140,000
Total cost of goods available for sale 660,000
Deduct Beginning inventory 130,000
Budgeted purchases P530,000

iii
. Answer: A
Cost of goods sold P750,000 x 0.6 P450,000
Add Ending Inventory P800,000 x 0.6 x 0.5 240,000
Total available for sale P690,000
Deduct Beginning inventory P450,000 x 0.5 225,000
Budgeted purchases, February P465,000

iv
. Answer: D
Cost of sales P120,000
Add Desired ending inventory 42,000
Total available for sale 162,000
Deduct Budgeted purchases 100,000
Beginning inventory P 62,000

v
. Answer: A
Total payments for purchases in June P140,000
Deduct payments applicable to purchase of:
June (P100,000 x 0.6) P60,000
May (P200,000 x 0.30) 60,000 120,000
Payments applicable to April purchase P 20,000
Credit purchase in April: P20,000  0.10 P200,000

vi
. Answer: C
Budgeted sales, First Quarter 120,000 units
Add Required Ending Finished goods: 30% x 160,000 48,000 units
Total units required 168,000 units
Less Beginning Finished goods 36,000 units
Budgeted production in units 132,000 units

vii
. Answer: C
Sales for three-month period:
July 400,000
August 400,000 x 1.05 420,000
September 420,000 x 1.05 441,000
Total 1,261,000

Inventory, September 30 (441,000 x 1.05 x 0.8) 370,440

Total Requirements 1,631,440
Less July Inventory 300,000
Budgeted Production 1,331,440

viii
. Answer: C
Beginning Inventory (8000 x 3.5) 28,000
Required Purchases 8,000
Direct Materials Used for Production (8000 x 3) (24,000)
Desired Ending Inventory 12,000

ix
. 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

x
. Answer: D
Required pounds by production 180,000
Ending raw materials required 60,000
Beginning raw materials ( 30,000)
Budgeted purchases 210,000

xi
. Answer: B
Materials required by June production 1,300 x 2 2,600
Add Ending raw materials inventory 1,600 x 2 x 0.5 1,600
Total materials required 4,200
Deduct Beginning materials inventory 1,300 x 2 x 0.5 1,300
Materials to be purchased 2,900

xii
. Answer: D
Budgeted sales 18,000
Add Finished goods inventory, end 11,400
Total 29,400
Deduct Finished good inventory, beginning 15,000
Budgeted production 14,400

Raw materials required by production (14,400 x 6  0.9) 6,000

Desired Raw materials inventory end 24,400
Total 120,400
Deduct Raw materials inventory, beginning 21,000
Budgeted purchase of raw materials 99,400

xiii
. Answer: D
Raw materials required by June production: 1,200 x 2 2,400
Add: Ending materials inventory 1,300 x 2 . 1.5 3,900
Total materials required 6,300
Deduct Beginning material inventory 2,400 x 1.5 3,600
Budgeted materials purchase 2,700

xiv
. Answer: A
Budgeted sales 300,000
Less decrease in Finished goods inventory 10,000
Budgeted production 290,000

Material Q required by production 290,000 x 3 870,000

Less decrease in Material Q inventory 60,000 – 80,000 20,000
Budgeted purchase in pounds, Material Q 850,000

xv
. Answer: B
Materials required by production 500,000 x 2 1,000,000
Increased in materials inventory (50,000 – 40,000) 10,000
Purchases 1,010,000

xvi
. Answer: B
Materials required by 2nd Quarter’s production 45,000 x 2.5 kgs. 112,500
Add: Materials inventory, end: 40,000 x 2.5 x0.25 25.000
Total materials required 137,500
Less: Materials inventory, beginning: 112,500 x 0.25 28,125
Total budget purchases in kilograms 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 P 84,000
Collections of account sales:
 March sales: (P420,000 x 0.8 x 0.7) 235,200
February sales: (P300,000 x 0.8 x 0.25) 60,000
January sales: (P240,000 x 0.8 x .05) 9,600
Total cash from sales P388,800

xix
. Answer: B
Total cash collections P57,000
Deductions collections on September sales (P80,000 x 0.6) 48,000
Collections applicable to July and August sales P 9,000
Credit sales in July: P9,000  2  0.15 P30,000

xx
. Answer: D
Collections from:
January sales (P860,000 x 0.8 x 0.75) P516,000
December sales (January 1 Accounts) 299,000
Collections of credit sales 815,000
Cash sales (P860,000 x 0.2) 172,000
Total cash received P987,000

xxi
. Answer: A
Collections sales of:
June: P8,000 x 0.7 P5,600
May: P7,000 x 0.3 2,100
Total collections from sales P7,700

xxii
. Answer: B
October 90,000 x .95 P 85,500
November 100,000 x .85 85,000
December 85,000 x .70 59,500
Fourth quarter sales collected in fourth quarter P230,000

xxiii
. Answer: D
Cash sales P 70,000
Collections from account sales:
January (P340,000 x 0.60) 204,000
December (P50,000 x 30/40) 37,500
November 20,000
Total cash receipts in January 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 month’s sales
November 2,000,000 x .12 P 240,000
October 1,800,000 x .75 1,350,000
September 1,600,000 x .06 96,000
August 1,900,000 x .04 76,000
Total credit 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
. Answer: D
Cost of goods sold P1,680,000
Deduct desired decrease in inventories 70,000
Budgeted purchases P1,610,000
Add decrease in Accounts Payable 150,000
Budgeted payments for purchases P1,760,000

xxviii
. Answer: A
November costs (P1,952,000 – P288,000) x 0.75 P1,248,000
October costs (P1,568,000 – P288,000) x 0.25) 320,000
 Total disbursements P1,568,000

xxix
. Answer: C
Beginning Cash P 20,000
Add:Cash collected on June's sales (P300,000 x .8 x .98) 235,200
Cash collected on May's sales ((P300,000/1.25) x .2) 48,000 283,200
Total P303,200
Less:Cash paid on June's purchases (P240,000 x .6 x .99) 142,560
Cash paid on May's purchases (P200,000 x .4) 80,000 222,560
Ending cash balance 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
. Answer: D
Payments for:
February purchases 54% x P2,436,000 P1,315,440
January purchases 46% x P2,250,000 1,035,000
Total payments for purchases P2,350,440
Selling, general and administrative expenses:
February: [(P3,420,000 x 0.15) – P20,000]0.54 266,220
January: [(P3,570,000 x 0.15) – P20,000]0.46 237,130
Total cash disbursements P2,853,790

xxxii
. Answer: A
Billings of December 31:
Collections with 3% discount P3,630,000 x 0.6 x 0.97 P2,112,660
Collections end of January P3,630,000 x 0.25 907,500
Billings of November 30: P3,540,000 x 0.09 318,600
Total collections P3,338,760

xxxiii
. Answer: B
Budgeted March sales 12,000
Add: Ending inventory units 15,860
Total units required 27,860
Less: Beginning inventory units 15,600
Budgeted purchases in units, March 12,260

xxxiv
. Answer: A
Payments for purchases in the month of:
December (0.2 x P120,000 x 0.6) P14,400
January (0.2 x P160,000 x 0.4) 12,800
Total January disbursements for purchases P27,200

xxxv
. Answer: C
Payments for purchases:
May purchase (0.2 x P200,000 x 0.6) P24,000
June purchase (0.2 x P220,000 x 0.4) 17,600
Total 41,600
Labor costs 60,000
Fixed Overhead 30,000
Interest payments 45,000
Commission (0.03 x P1,020,000) 30,600
Total disbursements P207,200

xxxvi
. Answer: C
June cash sales (P390,000 x 0.1) P 39,000
Collections from account sales:
April sales (P390,000 x 0.9 x 0.7) 245,700
May sales (P420,000 x 0.9 x 0.3) 113,400
Total cash receipts, June P398,100
xxxvii
. Answer: B
Marketable securities purchased on:
June P 5,600
July 126,900
Cumulative purchase of MS P132,500

xxxviii
. Answer: A
Cash Budget (P’000)
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 (P’000)
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 (P’000)
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
. 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
xlii
. Answer: C
A month’s sales is collected 50 percent each in the first and second month. Therefore, the accounts receivable
outstanding as of March 31 includes March’s sales as well as 50 percent of February sales.
February’s accounts (P186,000 x 0.5) P 93,000
March’s sales 217,000
Outstanding accounts receivable, March 31 P310,000

xliii
. Answer: A
Current unit cost per 1,000
Material P 52
Labor 20
Overhead 10
Total 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 (1,700 + 1,200) x P82 P237,800
March 1,400 x P90 126,000
Cost of goods sold (first quarter) P363,800

xliv
. Answer: A
JanuaryFebruaryMarchCash collections203,750248,000224,750Cash disbursements Payments for
materials93,60084,000120,000 Labor expenses28,00040,00050,000 Overhead14,00020,00025,000 Selling &
administrative52,70037,20043,400 Interest8,000 Taxes64,560 Dividends . . 48,420 Total
disbursements188,300181,200359,380 Net Cash Inflow (Outflow)15,45066,800(134,630)Cash Balance,
Beginning30,00025,00025,000Cumulative cash balance45,450 91,800(109,630)Marketable
securities20,45066,800( 87,250) Cumulative MS20,45087,250Borrowings 0 0 47,380Cash Balance,
End25,000112,25025,000
xlv
. Answer: C
 Proforma Income Statement
JanuaryFebruaryMarchTotalSales263,500186,000217,000666,500Cost of goods sold139,40098,400126,000363,800Gross
profit124,10087,60091,000302,700Selling expenses, 20%52,70037,20043,400133,300Operating
income71,40050,40047,600169,400Interest expense2,6672,6672,6668,000Income before
tax68,73347,73344,934161,400Income tax, 40%27,49319,09317,97464,560Net income41,24028,64026,96096,840
xlvi
. Answer: A
August sales
Billed 8/20 P350,000 x 18% P 63,000
Billed 9/10 P350,000 x 80% x 98% 274,400
Collections in Sept of Aug sales P337,400

xlvii
. Answer: B
Russon provides 25 percent of next month’s quantity sales.
25% x P400,000 x 80% = P80,000

xlviii
. Answer: D
May sales billed June 10 250,000x18% P 45,000
June Sales:
Billed June 20 300,000 x 18% 54,000
Billed July 10 300,000 x .80 z .98 235,200
July sales
Billed July 20 P350,000 x .80 x .98 P274,400
July Collections P608,600