BUDGETING

1. Ballan Inc. estimates its units sales for the coming months to be as follows:

March 280,000
April 260,000
May 250,000
June 230,000
July 240,000
August 225,000

Ballan maintains inventory at budgeted sales needs for the next month. March 1 inventory will be 248,000 units.
Prepare a monthly purchasing schedule for March through July.

2. Superior Company manufactures a single product. It keeps its inventory of finished goods at twice the coming month's budgeted
sales and inventory of raw materials at 150% of the coming month's budgeted production. Each unit of product requires five pounds
of materials, which cost P3 per pound. The sales budget is, in units: May, 10,000; June, 12,400; July, 12,600; August, 13,200.
Required:
a. Compute budgeted production for June.
b. Compute budgeted production for July.
c. Compute budgeted material purchases for June in pounds and pesos.

3. Ironwood sells a single product for P10. The purchase cost is P4 per unit and Ironwood pays a 20% sales commission. Fixed costs
are P45,000 per month including P12,000 depreciation, and the company maintains inventory equal to budgeted sales needs for the
following month. The following budgeted data are available.

Inventory on hand, February 1 28,000 units

Budgeted sales - February 24,000 units
- March 26,000 units
- April 25,000 units

Required:
a. Compute total budgeted income for February and March.
b. Find budgeted inventory at March 31 in units and pesos.
c. Find budgeted purchases for March in units and pesos.

4. Webster Company has the following sales budget.

January 200,000
February 240,000
March 300,000
April 360,000

Cost of sales is 70% of sales. Sales are collected 40% in the month of sale and 60% in the following month. Webster keeps inventory
equal to double the coming month's budgeted sales requirements. It pays for purchases 80% in the month of purchase and 20% in
the month after purchase. Inventory at the beginning of January is P190,000. Webster has monthly fixed costs of P30,000 including
P6,000 depreciation. Fixed costs requiring cash are paid as incurred.

Required:
a. Compute budgeted cash receipts in March.
b. Compute budgeted accounts receivable at the end of March.
c. Compute budgeted inventory at the end of February.
d. Compute budgeted purchases in February.
 e. March purchases are P290,000. Compute budgeted cash payments in March to suppliers of goods.
f. Compute budgeted accounts payable for goods at the end of February.
g. Cash at the end of February is P45,000. Cash disbursements are not required for anything other than payments to
suppliers and fixed costs. Compute the budgeted cash balance at the end of March.

5. Weasel Company has the following sales projections for 2014:

January 200,000
February 210,000
March 225,000
April 230,000
May 245,000
June 240,000

Weasel collects 40% of its sales in the month of sale, 45% in the month following the sale and 13% in the second month following
the sale. Records show that sales were P225,000 in November and P208,000 in December 2013.

Required:
a. Prepare a schedule of cash receipts for the first three months of 2014.
b. What would be the accounts receivable (net of bad debts) balance on March 31, 2014?

6. All sales at Meeks Company, a wholesaler, are made on credit. Experience has shown that 70% of the accounts receivable are
collected in the month of the sale, 26% are collected in the month following the sale, and the remaining 4% are uncollectible. Actual
sales for March and budgeted sales for the following four months are given
below:
March (actual sales) ........... 200,000
April ................................... 300,000
May .................................... 500,000
June .................................... 700,000
July .................................... 400,000

The company's cost of goods sold is equal to 60% of sales. All purchases of inventory are made on credit. Meeks Company pays for
one half of a month's purchases in the month of purchase, and the other half in the month following purchase. The company
requires that end-of-month inventories be equal to 25% of the cost of goods sold for
the next month.

Required:
a. Compute the amount of cash, in total, which the company can expect to collect in May.
b. Compute the budgeted dollar amount of inventory which the company should have on hand at the end of
April.
c. Compute the amount of inventory that the company should purchase during the months of May and June.
d. Compute the amount of cash payments that will be made to suppliers during June for purchases of inventory.

1.
a. March purchases: 292,000 units [280,000 + 260,000 – 248,000]

April purchases: 250,000 units [260,000 + 250,000 – 260,000]

May purchases: 230,000 units [250,000 + 230,000 – 250,000]

June purchases: 240,000 units [230,000 + 240,000 – 230,000]

July purchases: 225,000 units [240,000 + 225,000 – 240,000]

2.
a. June production: 12,800 units [12,400 + (2 x 12,600) - (2 x 12,400)]

b. July production: 13,800 units [12,600 + (2 x 13,200) - (2 x 12,600)]

c. June materials purchases: 71,500 pounds; $214,500

Used in production (5 lbs. x 12,800) 64,000 lbs.

Ending inventory (5 lbs. x 13,800 x 150%) 103,500
-------
Total 167,500
Less beginning inventory (5 lbs. x 12,800 x 150%) 96,000
-------
Purchases 71,500
Times cost per pound $3
-------
Equals dollar purchases $214,500
========

3.
a. Budgeted income: $110,000

Sales [(24,000 + 26,000) x $10] $500,000

Cost of sales (50,000 x $4) 200,000
-------
Gross profit $300,000
Commissions at 20% 100,000
-------
Contribution margin $200,000
Fixed costs (2 x 45,000) 90,000
-------
Income $110,000
========

b. Budgeted inventory: 25,000 units; $100,000 ($4 x 25,000)

c. Budgeted purchases: 25,000 units; $100,000

Cost of sales 26,000 units $104,000

Ending inventory 25,000 100,000
------ --------
Total required 51,000 $204,000
Less beginning inventory 26,000 104,000
------ --------
Purchases 25,000 units x $4 $100,000
====== ========

4.
a. March receipts: $264,000 [($240,000 x 60%) + ($300,000 x 40%)]

b. Receivables at end of March: $180,000 [$300,000 x (100% - 40%)]

c. Inventory at end of February: $420,000 ($300,000 x 70% x 2)

d. February purchases: $252,000 [($240,000 x 70%) + ($300,000 x 2 x 70%) - ($240,000 x 2 x 70%)]

e. March payments: $282,400 [(252,000 x 20%) + ($290,000 x 80%)]

f. AP at end of February: $50,400 ($252,000 x 20%)

g. Cash at end of March: $2,600 ($45,000 + $264,000 - $282,400 - $24,000)

5.
a. January collections: (13% x 225,000) = $29,250
(45% x 208,000) = 93,600
(40% x 200,000) = 80,000
-------
$202,850
========

February collections: (13% x 208,000) = $27,040

(45% x 200,000) = 90,000
(40% x 210,000) = 84,000
-------
$201,040
========

March collections: (13% x 200,000) = $26,000

(45% x 210,000) = 94,500
(40% x 225,000) = 90,000
-------
$210,500
========

b. $157,800 $ 27,300 = February sales 210,000 x 13%

$130,500 = March sales 225,000 x (45% + 13%)
--------
$157,800
========

6.
a. Sales, April: $300,000 × 0.26 ........... $ 78,000
Sales, May: $500,000 × 0.70 ............ 350,000
Total Collections .............................. $428,000

b. Budgeted cost of goods sold for May:

$500,000 × 60% = $300,000
Required inventory level at the end of April:
$300,000 × 25% = $75,000

c. May June July

Budgeted sales ........................................ $ 500,000 $700,000 $400,000
Budgeted cost of goods sold (60%) ........ 300,000 420,000 240,000
Desired ending inventory, at cost* .......... 105,000 60,000
Total needs .............................................. 405,000 480,000
Less beginning inventory, at cost** ........ 75,000 105,000
Required purchases, at cost ..................... $330,000 $375,000
*Following month’s cost of goods sold × 25%
**Current month’s cost of goods sold × 25%

d. Payments for May purchases: $330,000 × 0.50 ........ $165,000

Payments for June purchases: $375,000 × 0.50 ........ 187,500
$352,500