SAMPLE PROBLEMS – FINANCIAL PLANNING AND BUDGETS

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Problem I
Bags, Inc. manufactures leather bags with 3 zipper-type pockets. The company outsources the zippers at P8 per unit. Each
bag requires 5 direct labor hours to produce at a rate of P10 per hour. Budgeted sales of bags for the first quarter of the
year and the first month of the following quarter are as follows:

January – 900 units

February – 1,000 units
March – 1,500 units
April – 1,800 units

Inventory data are as follows:

January 1:
Leather bags – 360
Zipper – 1,620

End of each month:

Leather bags – 40% of the following month's budgeted sales
Zipper – 60% of the following month's production requirement

1. What is the budgeted production of leather bags for the first quarter?
2. What is the budgeted purchases of zipper for February?
3. What is the total budgeted zipper and labor costs for the month of March?
4. Assume that on the average, a full-time factory worker works 188 hours per month and no overtime is allowed,
how many full-time equivalent factory workers are needed to produce the budgeted output of leather bags in
January?

Problem II
The following information was gathered by the Budget Committee Chairman of Gigette Corporation:

Gigette Corporation produces and sells only one product. The selling price during the budget period is expected to be the
prevailing price of P7.50 per unit. The company expects to sell 112,500 units of the product during the period. The desired
finished goods inventory at the end of the period is 75,000 units while the expected beginning inventory is 62,500 units.

Direct labor is P4.50 per hour. Each product requires 30 minutes to complete.

Factory overhead is applied to production on the basis of direct labor hours. Variable factory overhead cost at the planned
level of operations is budgeted at P49,800; fixed budgeted overhead is budgeted at P149,400.

Each unit of product requires 1.5 kgs. of raw materials. Only one kind of raw material is used, and it is expected to cost
P0.30 per kilo. The desired ending inventory of raw materials is 12,000 kgs.; the expected beginning inventory is 9,500
kilograms.

Variable selling and administrative costs will amount to P1.50 per unit of product sold.

1. The budgeted production is?

2. The budgeted materials purchase for the period is?
3. The budgeted direct labor cost is?
4. The budgeted cost of goods sold on an absorption costing basis is?
5. The budgeted income before tax is?
Problem III
2B Corporation is preparing its Master Budget for 200B. Budget information are as follows:
Sales (peso) Production Cost (peso) Operating expenses
(peso)
200B: 1st quarter 280,000 192,000 64,000
2nd quarter 320,000 200,000 68,000
rd
3 quarter 360,000 224,000 72,000
4th quarter 352,000 200,000 76,000

200C: 1st quarter 320,000 224,000 72,000

The budgeted finished goods inventories are:

200B:
March 31 – P56,000
June 30 – 52,000
September 30 – 60,000
December 31 – 48,000

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 costs and operating expenses, with the exemption of depreciation are to be paid during
the quarter of incurrence.

Collections on sales are planned at 60% during the quarter of sales, the balance during the quarter following the sale.
Dividends of P20,000 is 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.

Income tax is equal to 32% of the quarter's income before tax and is paid in the following quarter.

The company's statement of financial position as of December 31,200A is as follows:

1. How much was the actual sales during the last quarter of 200A?
2. What is the total budgeted cost of goods sold for the year 200B?
3. How much dividends will be paid in 200B?
4. What is the total budgeted cash disbursements for production costs and operating expenses for the year 200B?
5. What is the budgeted cash balance on December 31, 200B?
6. What is the expected balance of accounts receivable as of December 31, 200B?
7. What is the budgeted balance of raw materials inventory as of December 31, 200B?
8. What is the expected balance of income tax payable as of Dec. 31, 200B?
9. What is the budgeted balance of retained earnings as of December 31, 200B?
10. What is the expected balance of the plant and equipment account as of December 31, 200B?
11. If a budgeted statement of financial position as of December 31, 200B is to be prepared, total assets will be?