BASIC OPERATING BUDGET

MM Company is in the process of preparing its operating budgets for 2023. The company produces and sell only one
product “HHH”. The ff. data are taken from its statement of assumptions:

Sales and Collections:

The product is currently sold at unit price of 150. The ff. estimates are developed by the marketing department
as probable sales in January 2023:
Unit sales Probability (%)
40,000 30
50,000 50
60,000 20
Sales in the succeeding months are expected to increase by 10% from each month thereafter, except for the
month of April which is expected to increase by 20% from the immediate preceding month.
80% of the sales are to be made in credit with terms 2/10 n/40. Billings are made on the date of sales and
collections are made as follows:
40% in the month of sales with 55% paying within the discount period
50% in the first month after sale
5% in the second month after the sale
5% are uncollectibles
The AR balance on Dec. 31, 2022 is 4,000,000 with 75% of it came from December 2022 sales.

Production:
The finished goods inventory at the end of each month is set at 80% of the next month sales.

Materials:
A unit of “HHH” need 4 lbs. of material X costing 5/lb. materials inventory at the end of each month is estimated
to be 20% of the next month’s need plus 20,000 lbs. Payments to materials suppliers are 60% in the month of purchase
and 40% in the ff. month of purchase. The accounts payable balance on Dec. 31, 2022 is 600,000.

Labor:
It takes 2hrs to produce a unit of “HHH”. On the average, production workers are paid at the rate of 40/hr.
Payroll cost amounting to 20% of the total payroll for the month are estimated to be paid in the next month.

Factory Overhead:
The standard Variable OH rate is 5/hr. Total budgeted FOH is set at 6,000,000 to be incurred evenly during the
year. The company’s normal capacity is 50,000 units per month.

REQUIRED:
Budgeted operating and financial data for the months of January, February, and March 2023
1. Sales in units and in pesos net of ADA and discounts
2. Collections from costumers
3. Production
4. Materials purchases in units and pesos
5. Payments to material suppliers
6. Direct Labor
7. Factory Overhead
8. Total Production Cost