MASTER BUDGETING EXERCISES

Problem 1-2:
Cudal Company prepared the following figures for its only product as a basis for its 2008 budget:
Budgeted sales 240,000 units
Selling price P5
Required materials per unit of product 2 pieces
Materials beginning inventory 20,000 pieces
Materials ending inventory 24,000 pieces
Purchase price per piece of material P3
Finished goods beginning inventory 15,000 units
Finished goods ending inventory 18,000 units
Direct labor hours, per 1,000 units of product 60 hours
Direct labor rate per hour P30
Variable factory overhead rate per hour P10
Fixed factory overhead P300, 000

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1. The budgeted peso amount of materials purchases is

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2. The total budgeted manufacturing cost for 2008 is
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Problem 3-4:
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Nicely Wyn Corporation has the following budgeted production for four months:
April 50,000
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May 40,000
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June 45,000
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July 60,000
Each unit of product requires 2 pieces of raw materials. The desired ending raw materials inventory
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for each month in 130% of the following month’s production needs, plus 2,000 pieces. (The April 1
inventory meets this requirement.)
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The product is processed in two departments (Dept. A and Dept. b) and the direct labor standards
are follows:
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Hours per unit Rate per hour Labor cost per unit
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Department A 6 P30 P180

Department B 2 40 80
3. What is the budgeted purchases of raw materials in June?
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4. What is the budgeted direct labor cost for the month of May?

5. Fame Company has the following budget formula for factory overhead costs:
FOH: P5, 000,000 per month + P300 per unit of product
If the company plans to produce 50,000 units in January, how much is the budgeted factory
overhead cost?

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 Problem 6-8:
Pinugo Company is preparing its factory overhead cost budget for the third quarter of 2008. The
management plans to produce 200,000 units for the said quarter. Past experience has shown that
the company’s product is produced at the rate of 4 units per hour. Variable rates per direct labor
hour are as follows:
Indirect materials and supplies P0.76
Power 1.36
Repairs and maintenance 2.80
Other variable overhead 0.96
Total P5.88
Total fixed overhead cost is budgeted at P147, 200. For product costing purposes, a fixed factory
overhead rate of 3.20 per direct labor hour has been established.
6. How much is the total budgeted factory overhead for the quarter?
7. The total factory overhead cost per unit of product is
8. How much is the expected capacity variance?

9. Gargalicana Company is preparing its cash budget for the next year Budgeted sales for four

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months are as follows:

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April P80, 000
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May 160,000
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June 240,000
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July 80,000
Fifty percent of total sales is cash sales. The balance, or the credit sales, is collected in the following
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manner:
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70% in the month following the sale

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20% in the second month following the sale

10% in the third month following the sale
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How much is the budgeted cash receipts in July?

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10. Oyco Company’s budget committee came up with the company’s budgeted sales for the first five
months of the budget year 2008:
January P 76,000
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February 52,000
March 56,000
April 64,000
May 68,000
Ninety percent of the total sales is on credit. Historically, Oyco Company has had no significant bad
debt experience with its customers, and the receivables have been collected in the following
manner:
40% in the month of sale
30% in the month following the sale
25% in the second month following the sale
5% in the third month following the sale

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 However, due to the deteriorating economic conditions brought about by the continuous increases in
oil prices and other external factors, the budget committee decided that the cash forecast should
include a provision for the bad debts of 2% on credit sales beginning with the sales for the month of
April.
Because of this change in collection policy, the total cash inflow from April sales will be

Problem 11-16:
Pasol Company has just prepared its master budget for the year 2008. Some of the information used
in the preparation of such budget is as follows:
1. Budgeted sales:
January P480, 000
February 520,000
March 560,000
April 500,000
May 576,000
June 640,000
2. Twenty percent of total sales is cash sales. The collection pattern for the sales credit is as
follows:
30% in the month of sale
40% in the month after the month of sale
25% in the second month after the month of sale

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3. Pasol Company’s gross margin rate is 60% of sales

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4. Accounts payable arising from merchandise purchases is paid for in the month following the

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purchase.
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5. The company desired an inventory at the end of each month equal to 30% of the next
month’s sales in units. o.
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6. The variable operating expenses (other than cost of goods sold are 10% of sales and are
paid for in the month following the sale)
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7. The annual fixed operating expenses are as follows:

Depreciation P336, 000
Advertising 576,000
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Insurance 144,000
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Salaries 864,000
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Property taxes 192,000

8. All of the fixed operating expenses are incurred uniformly throughout the year. Cash fixed
operating expenses are paid in the month of incurrence, except for:
 Insurance- paid quarterly in January, April, and July
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 Property taxes- paid twice a year in April and October

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11. The budgeted cash collections in March for the sales made in March is
12. The budgeted cash receipts for the month of April is
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13. The budgeted purchases of merchandise for February is

14. The budgeted cash disbursements for operating expenses (other than cost of goods sold) during
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the month of April is

15. The budgeted cash disbursements to be made in April for merchandise purchases is
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16. Assume that the expected cash balance at the beginning of April is P51, 600. How much is the
budgeted cash balance as of April 30?

Problem 17-18:
Songco Company is preparing its cash budget for the last two months of the first quarter of the
calendar year 2008. Following are some pertinent budget data gathered by the company’s budget
committee:
January February March
Sales P32, 000 P40, 000 P80, 000
Accounts payable arising from 24,000 32,000 32,000
merchandise purchase
Salaries 48,000 56,000 40,000
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 Other expenses 25,000 29,000 13,000
 Collection pattern:
One-half of each month’s sales is collected in the month of sale; the balance is collected in
the following month.
 Payment for accounts payable:
Three- quarters of the current month’s accounts payable budget is paid during the month;
the balance is paid in the following month.
 The budgeted other expenses include depreciation expense of P5, 000 per month. Expenses
requiring cash outlays are paid for in the month of incurrence.
 The company intends to maintain a minimum cash balance of P80, 000.
 In case of deficits, the company may borrow from its bank which gave it a standby
credit line of P300, 000 at an annual interest rate of 12%. Per their agreement, the
company must borrow in multiples of P10, 000. Principal repayments are to be made
in any month in which there is surplus of cash. Interest is to be paid monthly. There
is no outstanding balance of loan on the line of credit as of February 1.
 If there is no outstanding balance on the loan, the company will invest any cash in
excess of its desired end-of-month cash balance in Government Securities.
17. For the month of February, Songco Company’s cash budget will result in a need to
a. Repay loan principal of P6,000
b. Borrow P80,000
c. Borrow P74,000
d. Borrow P160,000

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18. For the month of March, Songco Company’s cash budget will result in a need to

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a. Make a partial payment of P65,200 for the loan obtained in February
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b. Borrow P20,000
c. Borrow P20,000 and pay interest of P800
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d. Borrow P110,000
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19. Ayla Company is preparing its cash budget for the coming quarter. Following information is
available:
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Budget credit sales P640, 000

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Cash disbursements 624,000

Depreciation 20,000
Cash balance, beginning 40,000
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Accounts receivable, beginning balance 144,000

Accounts receivable, ending balance 168,000
What is the budgeted cash balance at the end of the coming quarter?
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Problem 20-22:
Traders Inc. uses accrual accounting. Its balance sheet as of the end of the third quarter of the
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calendar year 200B is shown on the following page:

TRADERS INC.
Balance Sheet
September 30, 200B

Assets Liabilities and Equity

Cash P416, 000 Accounts Payable P1, 400,000
Accounts receivable, net 1,200,000
Merchandise inventory 2,520,000 Capital stock 7,200,000
Non-current assets 8,000,000 Retained earnings 7,536,000
Total Assets P12, 136,000 Total Liabilities and equity P12, 136,000

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 Additional information:
 Budgeted sales for October is P4, 160,000; for November, P4, 000,000.
 Gross profit rate is 20%.
 Of the total sales, 40% is on credit which the company collects in the month following the
month of sale.
 Purchases in each month are composed of:
o 80% of the coming month’s requirement
o 20% of the current month’s requirement
 Purchases are paid for in the month following the month of purchase.
20. The budgeted cash collections for the month of October is
21. Budgeted purchases during October is
22. The budgeted gross profit for the month of October is

2B Corporation is preparing its Master Budget for 200B. Budget information are as follows:
Sales Production cost Operating expenses
200B: 1ST Quarter P280, 000 P192, 000 P64, 000
2nd Quarter 320,000 200,000 68,000
3rd Quarter 360,000 224,000 72,000

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4th Quarter
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200C: 1st Quarter 320,000 224,000 72,000
The budgeted finished goods inventories are:
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200B: March 31 P56, 000

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June 30 52,000
September 30 60,000
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December 31 48,000
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The company uses the JIT system on its purchase of materials. It buys materials on cash basis.
Included in production cost each quarter is P44, 000 in depreciation. The operating expenses include
depreciation of P12, 000 per quarter. All production cost and operating expenses, with the
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exemptions of depreciation are to be paid during the quarter of incurrence.

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Collections on sales are planned at 60% during the quarter of sales, the balance during the quarter
following the sale. Dividends of P20, 000 to be paid in June and again in December if covered by
sufficient profits. No dividends will be paid if the net profit is less than P120,000.
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Income tax is equal to 32% of the quarter’s income before tax and is paid in the following quarter.
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The company’s balance sheet as of December 31, 200A is as follows:

2B CORPORATION
Balance Sheet
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December 31, 200A

Assets Liabilities and Equities
Cash P76, 000 Income tax payable P12, 000
Accounts receivable, net 120,000
Inventory 44,000 Capital stock 640,000
Plant and Equipment, net 580,000 Retained earnings 168,000
Total Assets P820, 000 Total liabilities and equity P820, 000

23. How much was the actual sales during the last quarter of 200A?
24. What is the total budgeted cost of goods sold for the year 200B?

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 25. How much dividends will be paid in 200B?
26. What is the total budgeted cash disbursements for production costs and operating expenses for
the year 200B?
27. What is the budgeted cash balance on December 31, 200B?
28. What is the expected balance of accounts receivable as of December 31,200B
29. What is the budgeted balance of raw materials inventory as of December 31, 200B?
30. What is the expected balance of income tax payable as of December 31,200B?
31. What is the expected balance of retained earnings as of December 31,200B?
32. What is the expected balance of the plant and equipment account as of December 31, 200B?
33. If a budgeted balance sheet as of December 31,200B is to be prepared, total assets will be

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