LESSON 5 – FINANCIAL PLANNING

Activities/Assessments:
Exercise 5-1: Plano Company has developed the following flexible budget formula for its annual indirect labor cost: Total
costs = P12, 600 + 0. 80 per machine hour. Operating budgets for the current month are based upon 10, 000 machine hours.
How much will be the indirect labor cost to be shown in its planning budget?

Answer Total costs = P12, 600 + 0. 80 per machine hour = P12, 600 x P0.8 (10, 000) = P20, 600
:

Exercise 5-2: Congress Company budgets sales at P4, 000, 000 and expects a profit after interest but before tax of 10% of the
sales. Expenses are estimated as follows: Selling = 15% of sales; administrative = 9% of sales; Finance = 1% of sales. Labor is
expected to be 40% of the total manufacturing costs. Factory overhead is to be applied at 75% of direct labor costs.
Inventories are to be as follows:

January 1 December 31
Materials 250, 000 300, 000
Work-in-Process 200, 000 320, 000
Finished Goods 350, 000 400, 000

Required: Determine the following:

a. Cost of goods sold c. Factory overhead
b. Total manufacturing costs d. Materials purchases

Sales 100% P4, 000, 000

Cost of sales (a) (65%) (2, 600, 000)
GP 35% P1, 400, 00
Selling expense 15%
Administrative 9%
Finance 1% (25%) (1, 000, 000)
Profit after interest but before tax 10% P400, 000

SUBJECT: ACCO20123 FINANCIAL MANAGEMENT 1

PREPARED BY: RODISON E. DE GUIA, CPA
Exercise 5-3: Past Collections experienced by House Company proved that 60% of the net sales billed in a month are collected
during in the month of sales, 30% are collected in the following month, and 10% are collected in the second following month.
A record of monthly net sales of previous months is as follows:

2020 November P450, 000

December 460, 000
2021 January 480, 000
February 420, 000
March 500, 000
April 550, 000
May 600, 000
June 700, 000

On January 1, 2021, the net accounts receivable balance showed P229, 000.

Required: Determine the following:

a. The monthly collection from January to June.
b. The balance of accounts receivable per month.

SOLUTION GUIDE TO EXERCISE 5-3

SUBJECT: ACCO20123 FINANCIAL MANAGEMENT 2

PREPARED BY: RODISON E. DE GUIA, CPA
Exercise 5-4: ZENKI Company is now in the process of preparing a production budget and budgeted purchases of raw
materials in the third quarter. Past experience has shown that end-of-month inventories of finished goods must equal 40% of
the next month’s sales. Each unit of product requires 2 pounds of material and it cost P1.5 per pound. The inventory Finished
Goods and Raw materials at the end of June was 20, 000 units and 30, 000 pounds, respectively. The company’s budgeted
amount is shown below:

Sale in Raw materials,

Units End. (lbs.)
July 60, 000 35, 000
August 90, 000 40, 000
September 120, 000 45, 000
October 100, 000 50, 000

Required:
a. Prepare a production budget for the third quarter per month and in total.
b. Prepare budgeted purchases of raw materials in Pounds and in Pesos.
c. Assume: Each product of Zenki requires 1.5 of direct labor hours and it pays P5 per direct labor hour while the factory
overhead is applied at 80% of direct labor cost. Compute the total amount of conversion costs incurred during the
period.

Solution Guide:

SUBJECT: ACCO20123 FINANCIAL MANAGEMENT 3

PREPARED BY: RODISON E. DE GUIA, CPA
Exercise 5-5: Planners Company has developed the following flexible budget formula for its annual indirect labor cost: Total
costs = P 19, 200 + 0. 80 per machine hour. Compute the total amount of indirect labor cost to be shown in its planning
budget assuming that the company consumes:
a. 10, 000 machine hours = 19, 800 x (0.8 x 10, 000) = P27, 200
b. 12, 500 machine hours = 19, 800 + (0.8 x 12, 500) = 29, 200
c. 8, 900 machine hours = 19, 800 + (0.8 x 18, 900) = 26, 320
d. 15, 200 machine hours = 19, 800 + (0.8 x 15, 200) = 31, 360
e. 13, 400 machine hours = 19, 800 + (0.8 x 13, 400) = 29, 920

Exercise 5-6: DBM Manufacturing budgets sales at P8, 000, 000 and expects a profit after interest but before tax of 10% of
the sales. Expenses are estimated as follows: Selling = 8% of sales; administrative = 16% of sales; Finance = 1% of sales. Labor
is expected to be 50% of the total manufacturing costs. Factory overhead is to be applied at 60% of direct labor costs.
Inventories are to be as follows:

January 1 December 31
Materials 500, 000 600, 000
Work-in-Process 400, 000 640, 000
Finished Goods 700, 000 800, 000

Required: Determine the following budgeted amount:

a. Selling Expenses i. Total manufacturing costs
b. Administrative expenses j. Applied FOH
c. Finance costs k. Direct labor
d. Net profit l. Direct materials used
e. Cost of goods sold m. Total materials available for use
f. Cost of goods available for sales n. material purchases
g. Cost of goods manufactured o. Gross Profit
h. total cost of goods placed into process

Sales 100% P8, 000, 000

Cost of sales e. (65%) (5, 200, 000)
GP o. 35% P2, 800, 00
Selling expense a. (8%) (640, 000)
Administrative b. (16%) (1, 280, 000)
Finance c. (1%) (80, 000)
Profit after interest but before tax d. 10% P800, 000

RM, Beg. 500,000

Add: Purchases 1,208,000 n.
Total materials available for use 1,708,000 m.
Less: RM, End. 600,000
RM used 1,108,000 l.
Direct Labor (50% of TMC) 2,770,000 k.
FOH (60% OF DLC) 1,662,000 j.
Total Manufacturing Costs 5,540,000 i.
Add: WIP, Beg. 400,000
Total cost of production put into process 5,940,000 h.
Less: WIP, end. 640,000

SUBJECT: ACCO20123 FINANCIAL MANAGEMENT 4

PREPARED BY: RODISON E. DE GUIA, CPA
 Cost of Goods Manufactured 5,300,000 g.
Add: Finished Goods, Beg. 700,000
Cost of Goods Available for Sale 6,000,000 f.
Less: Finished Goods, End. 800,000
Cost of Sales 5,200,000 e.

Raw Materials
Use
Beg. 500,000 d 1,108,000 DM used 1, 108, 000
Purchases 1,208,000 End. 600,000 DL (50% of TMC) 2, 770, 000
Tota
Total 1,708,000 l 1,708,000 FOH (60% of DLC) 1, 662, 000
Total TMC 5, 540, 000

WIP FG
Beg. 400,000 CGM 5,300,000 Beg. 700,000 CGS 5,200,000
TMC 5,540,000 End. 640,000 CGM 5,300,000 End. 800,000
Tota Tota Tota Tota
l 5,940,000 l 5,940,000 l 6,000,000 l 6,000,000

Exercise 5-7: Past Collections experienced by COLLECTOR Company proved that 40% of the net sales billed in a month are
collected during the month of sales, 30% in the following month, 20% are collected in the second following month and the
balance are collected in the third following month. A record of monthly net sales of previous months is as follows:
January - P500, 000
February - 560, 000
March - 600, 000
April - 680, 000
May - 650, 000
June - 700, 000
July - 725, 000
August - 740, 000
September - 800, 000

Required: Compute the following:

a. The balance of Accounts Receivables on March 31, 2021
b. The monthly collections from April to September
c. The ending balance of accounts receivable per month (April to September)
d. total collections for the 2nd quarter and for the 3rd quarter.

SUBJECT: ACCO20123 FINANCIAL MANAGEMENT 5

PREPARED BY: RODISON E. DE GUIA, CPA
 a. Computation of Beginning AR, April 1.
From Jan. Sales (500, 000 x 10%) P50, 000
From Feb. Sales (560, 000 x 30%) or (112, 000 + 56, 000) 168, 000
From Mar. Sales (600, 000 x 60%) or (180, 000 + 120, 000 + 60, 000) 360, 000
Beginning Balance of AR, April 1 P578, 000

b. Schedule of Monthly Collections

Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
Jan. P500, 000 200, 000 150, 000 100, 000 50, 000
Feb. 560, 000 224, 000 168, 000 112, 000 56, 000
Mar. 600, 000 240, 000 180, 000 120, 000 60, 000
Apr. 680, 000 272, 000 204, 000 136, 000 68, 000
May 650, 000 260, 000 195, 000 130, 000 65, 000
June. 700, 000 280, 000 210, 000 140, 000 70, 000
July 725, 000 290, 000 217, 500 145, 000 72, 500
Aug. 740, 000 296, 000 222, 000 148, 000 74, 000
Sept. 800, 000 - - - - - 320, 000 240, 000 160, 000 80, 000
Total P614, 000 P640, 000 P671, 000 P698, 000 P718, 500 P757, 000

Month of sales - 40% 2nd following month - 20%

Following month - 30% 3rd following month - 10%

c. Schedule of 2021 Monthly Accounts Receivable

April May June July August September
Beginning P578, 000 P644, 000 P654, 000 P683, 000 P710, 000 P731, 500
Net credit sales 680, 000 650, 000 700, 000 725, 000 740, 000 800, 000
Total P1, 258, 000 P1, 294, 000 P1, 354, 000 P1, 408, 000 P1, 450, 000 P1, 531, 500
Collections (614, 000) (640, 000) (671, 000) (698, 000) (718, 500) (757, 000)
Ending P644, 000 P654, 000 P683, 000 P710, 000 P731, 500 P774, 500

d. 2nd Quarter – P614, 000 + 640, 000 + P671, 000 = P1, 925, 000
3rd Quarter – P698, 000 + P718, 500 + P757, 000 = P2, 173, 500

SUBJECT: ACCO20123 FINANCIAL MANAGEMENT 6

PREPARED BY: RODISON E. DE GUIA, CPA
SUBJECT: ACCO20123 FINANCIAL MANAGEMENT 7
PREPARED BY: RODISON E. DE GUIA, CPA