Management Advisory Services

Handout 06: Budgeting

1. Modesto Company produces and sells Product A. To guard stockouts, the company requires that 20% of the next month’s
sales be on hand at the end of each month. Budgeted sales of Product B over the next four months are:

June July August September

Budgeted sales in units 30,000 40,000 60,000 50,000

Budgeted production for August would be:

A. 58,000
B. 44,000
C. 62,000
D. 60,000

2. The Wave Company has budgeted sales for next year as follows:

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Sales in units 12,000 14,000 18,000 16,000

The ending inventory of finished goods for each quarter should equal to 25% of the next quarter’s budgeted sales in units.
The finished goods inventory at the start of the year is 3,000 units. Scheduled production for the third quarter should be:
A. 17,500
B. 15,000
C. 18,500
D. 18,000

3. The Tod Company has budgeted production for next year as follows:

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Production in units 10,000 12,000 16,000 14,000

Four pounds of raw materials are required for each unit of produced. Raw materials on hand at the start of the year total
4,000 pounds. The raw materials inventory at the end of each quarter should equal to 10% of the next quarter’s production
needs. Budgeted purchases of raw materials in the third quarter would be:
A. 63,200
B. 15,800
C. 40,800
D. 64,800

4. Yum Corporation manufactures carrot-flavored ice cream. Yum’s production budget indicated the following units to be
produced for the upcoming months:

January February March

Units to be produced 100,000 120,000 150,000

Four ounces of carrots are needed to each gallon of ice cream. Yum also likes to have enough carrots on hand to cover 5%
of the next month’s production needs for carrots. How many ounces of carrots should Yum plan on purchasing during the
month of February?
A. 486,000
B. 480,000
C. 474,000
D. 484,500
5. Brum Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.05 labor-
hours. The direct labor rate is P75 per labor hour. The production budget calls for producing 9,100 units in May and 8,800
units in June. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would
be the total combined direct labor cost for the two months?
A. 67,125
B. 65,750
C. 34,125
D. 61,750

6. The following are budgeted data:

Sales (Units) Production (Units)

April 12,000 15,000
May 17,000 16,000
June 15,000 13,000

Each units requires 0.75 hours labor at a cost of P56.50 per hour. What is the cost of direct labor for May?
A. 104,000
B. 78,000
C. 110,500
D. 82,875

7. Rough Inc. bases its selling and administrative expense budget unit sales. The sales budget shows 7,800 units are planned
to be sold in April. The variable selling and administrative expense is P3.20 per unit. The budgeted fixed selling and
administrative expense is P95,160 per month, which includes depreciation of P9,360 per month. The remainder of the fixed
selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative
expenses on the April selling and administrative expense budget should be
A. 120,120
B. 110,760
C. 85,800
D. 120,000

8. The selling and administrative expense budget of Lock Corporation is based on budgeted unit sales, which are 6,300 units
for February. The variable selling and administrative expense is P9.30 per unit. The budgeted fixed selling and administrative
expense is P118,440 per month, which includes depreciation of P19,530 per month. The remainder of the fixed selling and
administrative expense represents current cash flows. The cash disbursements for selling and administrative expneses on
the February selling and administrative expense budget should be:
A. 177,030
B. 117,030
C. 98,910
D. 157,500

9. Par Company’s sales are 30% in cash and 70% on credit. Sixty percent of the credit sales are collected in the month of sales,
25% in the month following sales, and 12% in the second month following sales. The remainder are uncollectible. The
following are budgeted sales data:

January February March April

Total sales P 60,000 P 70,000 P 50,000 P 30,000

Total budgeted cash receipts in April would be:

A. 36,230
B. 47,900
C. 27,230
D. 23,630
10. Pad Company makes collection on credit sales according to the following schedule: 25% in month of sales; 70% in month
following sales; 4% in the second month following sale; and 1% uncollectible. The following sales have been budgeted:
April May June
Sales P100,000 P120,000 P110,000

Cash collections in June would be:

A. 115,500
B. 111,500
C. 155,500
D. 111,500

11. Absolute Company has a cash balance of P9,000 on April 1. The company must maintain a minimum cash balance of P6,000.
During April, expected cash receipts are P45,000. Expected cash disbursements during the month total P52,000. During
April, the company will need to borrow:
A. 4,000
B. 6,000
C. 2,000
D. 9,000

12. Jolo Inc. is working on its cash budget for October. The budgeted beginning cash balance is P35,000. Budgeted cash receipts
total P166,000 and budgeted cash disbursements total P162,000. The desired ending cash balance is P50,000. The excess
(deficiency) of cash available over disbursement for October will be:
A. 39,000
B. 50,000
C. 11,000
D. 35,000

Numbers 13-15
Iron Company Sells a single product for P10. The purchase cost is P4 per unit and Iron Company 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

13. Compute the budgeted income for March

A. 59,000
B. 51,000
C. 104,000
D. 63,000

14. Compute the budgeted inventory in units at March 31

A. 25,000
B. 26,000
C. 15,600
D. 100,000

15. Compute the budgeted purchases for March

A. 25,000
B. 26,000
C. 15,600
D. 100,000