Budgeting

MODULE 8 - BUDGETING D. There is communication of results.

THEORIES: 6. The budgets that are based on a very high levels of performance, like expected costs using ideal standards,
Basic Concepts A. assist in planning the operations of the company
1. The concept of “management by exception” refers to management’s consideration of B. stimulate people to perform better than they ordinarily would
A. only those items that vary materially from expectations. C. are helpful in evaluating the performance of managers
B. only rare events. D. can lead to low levels of performance
C. samples selected at random.
D. only significant unfavorable deviations. 7. Which of the following statements is incorrect?
A. An imposed budget is the same as a participative budget.
8. A formal written statement of management’s plans for the future, packaged in financial terms, is a: B. Preparation of the budget would be the responsibility of each responsibility unit.
A. Responsibility report. C. Cost of production report. C. Top management’s support is necessary to promote budget participation.
B. Performance report. D. Budget. D. The top management should review and approve each responsibility unit’s budget.

2. Budgets are related to which of the following management functions? 9. The primary role of the budget director and the budgeting department is to
A. Planning C. Control A. Settle disputes among operating executives during the development of the annual operating plan.
B. Performance evaluation D. all of these B. Develop the annual profit plan by selecting the alternatives to be adopted form the suggestions submitted
by the various operating segments.
22. Budgeting supports the planning process by encouraging all of the following activities except: C. Compile the budget and manage the budget process.
A. Requiring all organizational units to establish their goals for the coming period. D. Justify the budget to the corporate planning committee of the board of directors.
B. Increasing the motivation of managers and employees by providing agreed-upon expectations.
C. Improving overall decision making by considering all viewpoints, options, and cost control programs. 10. The primary variable affecting active participation and commitment to the budget and the control system is
D. Directing and coordinating operations during the period. A. Management efforts to achieve the budget rather than optimize results.
B. The rigid adherence to the budget without recognizing changing conditions.
3. Which of the following advantages does a budget mostly provide? C. Top management involvement in support of the budget.
A. Coordination is increased. D. The opportunity budgeting gives to risk-taker managers for department growth.
B. Planning is emphasized.
C. Communication is continuous. 12. A variant of fiscal-year budgeting whereby a twelve-month projections into the future is maintained at all times:
D. Comparison of actual versus budgeted data. A. Forecasting. C. Continuous budgeting.
B. Zero-based budgeting. D. Calendar budgeting.
24. Which of the following is NOT an advantage of budgeting?
A. It forces managers to plan. 35. The method of budgeting which adds one month’s budget to the end of the plan when the current month’s
B. It provides resource information that can be used to improve decision making. budget is dropped from the plan refers to
C. It aids in the use of resources and employees by setting a benchmark that can be used for the subsequent A. Long-term budget C. Incremental budget
evaluation of performance. B. Operations budget D. Continuous budget
D. It provides organizational independence.
27. A continuous budget
4. Which of the following is least likely a reason why a company prepares its budget? A. is a budget that is revised monthly or quarterly.
A. To provide a basis for comparison of actual performance B. is a medium term plan that consists of more than 2 years’ projections.
B. To communicate the company’s plans throughout the entire business organization C. is appropriate only for use of a not-for-profit entity.
C. To control income and expenditure in a particular period. D. works best for an entity that can reliably forecast events a year or more into the future.
D. To make sure the company expands its operations.
37. “Incremental budgeting” refers to
5. Which of the following does not contribute to an effective budgeting? A. line-by-line approval of expenditures
A. Top management is involved in budgeting. B. setting budget allowances based on prior year expenditures
B. To give each manager a free hand in the preparation of the budget, the data within the master budget are C. requiring top management approval of increases in budgets
flexible. D. using incremental revenues and costs in budgeting
C. The organization is divided into responsibility units.

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49. A budget plan for annual fixed costs that arises from top management decisions directly reflecting corporate A. program budgeting C. zero-based budgeting
policy. B. line budgeting D. flexible budgeting
A. Flexible budget. C. Discretionary budget.
B. Static budget. D. Program budget. 28. A static budget is not appropriate in evaluating a manager's effectiveness if a company has
A. substantial fixed costs.
36. The term “decision package” relates to B. substantial variable costs.
A. comprehensive budgeting C. program budgeting C. planned activity levels that match actual activity levels.
B. zero-based budgeting D. line budgeting D. no variable costs.

41. The budget approach that is more relevant when the continuance of an activity or operation must be justified on 45. Flexible budgeting is a reporting system wherein the
the basis of its need or usefulness to the organization. A. Budget standards may be adjusted at management’s discretion.
A. the incremental approach C. the baseline approach B. Planned level of activity is adjusted to the actual level of activity before the performance report is prepared.
B. the zero-based approach D. both a and b are true C. Reporting dates vary according to the managerial levels of the users.
D. Packages of activities vary from period to period.
11. The process of developing budget estimates by requiring all levels of management to estimate sales,
production, and other operating data as though operations were being initiated for the first time is referred to as: 15. A budget that presents the plan for a range of activity so that the plan can be adjusted for changes in activity
A. Forecasting. C. Continuous budgeting. levels is referred to as:
B. Zero-based budgeting. D. Program budgeting. A. Zero-based budgeting.
B. Continuous budgeting.
38. Which of the following is a contemporary approach to budgeting? C. Flexible budgeting.
A. incremental approach C. baseline approach D. Program planning and budgeting system.
B. zero-based approach D. both a and b are true
16. A flexible budget is
51. Zero-base budgeting requires managers to A. one that can be changed whenever a manager so desires
A. Justify expenditures that are increases over the prior period’s budgeted amount. B. adjusted to reflect expected costs at the actual level of activity
B. Justify all expenditures, not just increases over last year’s amount. C. one that uses the formula total costs = cost per unit x units produced
C. Maintain a full-year budget intact at all times. D. the same as a continuous budget
D. Maintain a budget with zero increases over the prior period.
26. A series of budgets for varying levels of activity is a:
13. Zero-based budgeting: A. Variable cost budget. C. Master budget.
A. involves the review of changes made to an organization’s original budget. B. Flexible budget. D. Zero-based budget.
B. does not provide a summary of annual projections.
C. involves the review of each cost component from a cost/benefit perspective. 48. If a company wishes to establish a factory overhead budget system in which estimated costs can be derived
D. emphasizes the relationship of effort to projected annual revenues. directly from estimates of activity levels, it should prepare a
A. flexible budget. C. Discretionary budget.
18. A systematized approach known as zero-based budgeting: B. Program budget. D. Manufacturing budget.
A. Classifies the budget by the prior year’s activity and estimates the benefits arising from each activity.
B. Commence with either the current level of spending or projected whichever is lower. 46. The basic difference between a master budget and a flexible budget is that a
C. Presents planned activities for a period of time but does not present a firm commitment. A. Flexible budget considers only variable costs but a master budget considers all costs.
D. Divides the activities of individual responsibility centers into a series of packages that are prioritized. B. Flexible budget allows management latitude in meeting goals whereas a master budget is based on a fixed
standard.
20. Which of the following statements about Zero-based budgeting is incorrect? C. Master budget is for an entire production facility but a flexible budget is applicable to single department only.
A. All activities in the company are organized into break-up units called packages. D. Master budget is based on one specific level of production and a flexible budget can be prepared for any
B. All costs have to be justified every budgeting period. production level within a relevant range
C. The process is not time consuming since justification of costs can be done as a routine matter.
D. Zero-based budgeting includes variable costs only. 47. Which of the following is a difference between a static budget and a flexible budgets?
A. A flexible budget includes only variable costs; a static budget includes only fixed costs.
34. Budgeting expenditures by purpose is called B. A flexible budget includes all costs, a static budget includes only fixed costs.

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C. A flexible budget gives different allowances for different levels of activity, a static budget does not. B. bottom-up planning.
D. There is no difference between the two. C. a combination of top-down and bottom-up planning.
D. None of the above
17. A system that classifies budget requests by activity and estimates the benefits arising from each activity:
A. Incremental budgeting system. 44. A common starting point in the budgeting process is
B. Static budgeting system. A. expected future net income. C. to motivate the sales force.
C. Program planning and budgeting system. B. past performance. D. a clean slate, with no expectations.
D. Participative system.
57. Which one of the following is an external factor that would need to be considered in forming an initial budget
21. A budget that identifies revenues and costs with an individual controlling their incurrence is proposal?
A. Master budget C. Product budget A. changes in product design
B. Responsibility budget D. None of the above B. introduction of a new product
C. competitors' actions
25. The difference between an individual's submitted budget projection and his or her best estimate of the item D. adoption of a new manufacturing process
being projected is an example of
A. padding the budget 14. Operating budgets are
B. adhering to zero-based budgeting assumptions A. a forecast of expected operating expenses.
C. creating budgetary slack B. a forecast of operating expenses and related revenues.
D. being incongruent with participative budgeting C. a forecast of units of production.
D. concerned with the income-generating activities of a firm.
43. Budget slack is a condition in which
A. Demand is low at various times of the year 54. What is the proper preparation sequencing of the following budgets?
B. Excess machine capacity exists in some areas of the plant 1. Budgeted Balance Sheet
C. There is an intentional overestimate of expenses or an underestimate of revenues 2. Sales Budget
D. Managers grant favored employees extra time-off 3. Selling and Administrative Budget
4. Budgeted Income Statement
39. The procedure for setting profit objectives in which the determination of profit objectives is subordinated to the A. 1, 2, 3, 4 C. 2, 3, 4, 1
planning, and the objectives emerge as the product of the planning itself is the B 2, 3, 1, 4 D. 2, 4, 1, 3
A. a priori method C. practical method
B. theoretical method D. a posteriori method 29. In estimating the sales volume for a master budget, which of the following techniques may be used to improve
the projections?
40. The procedure for setting profit objectives in which management specifies a given rate of return that it seeks to A. Brainstorming.
realize in the long run by means of planning toward that end is the B. Statistical analysis.
A. a priori method C. pragmatic method C. Estimating from previous sales volume.
B. theoretical method D. ad hoc method D. All of these are useful.

50. Budgeting process in which information flows top down and bottom up is referred to as: 30. Using the concept of ‘expected value” in sales forecasting means that the sales forecast to be used is
A. Continuous budgeting. C. Perpetual budgeting A. developed using the indicator method
B. Participative budgeting D. Joint budgeting B. the sum of the sales expected by individual managers
C. based on expected selling prices of the products
42. Which of the following is not a potential problem with participative budgeting? D. based on probabilities
A. setting standards that are either too high or too low
B. padding the budget 31. Several sales forecasts are available from different sources and the managers have good ideas about their
C. build slack into the budget likelihoods. This situation call for the use of
D. all of the above are potential problems A. the expected value concept C. indicator methods
B. historical analysis D. a scatter diagram
33. The ideal financial planning process would be
A. top-down planning. 53. An overly optimistic sales budget may result in

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A. increases in selling prices late in the year. based on the number of branch warehouses in operation, what formula would be used to determine budgeted
B. insufficient inventories. costs at various levels of activity?
C. increased sales during the year. A. Y = P400,000 + P250,000X C. Y = P650,000 + P400,000X
D. excessive inventories. B. Y = P400,000 + P290,000X D. Y = P650,000 + P250,000X

56. Which of the following budgets provides the data for the preparation of the direct labor cost budget? Sales budget
A. Direct materials purchase budget. C. Sales budget. Purchases budget – merchandising concern
B. Cash budget. D. Production budget. ii
. PTO Company desires an ending inventory of P140,000. It expects sales of P800,000 and has a beginning
inventory of P130,000. Cost of sales is 65% of sales. Budgeted purchases are
55. The increased use of automation and less use of the work force in companies has caused a trend towards an A. P 530,000 C. P 810,000
increase in B. P 790,000 D. P1,070,000
A. both variable and fixed costs.
B. fixed costs and a decrease in variable costs. iii
. Calypso Co. has projected sales to be P600,000 in January, P750,000 in February, and P800,000 in March.
C. variable costs and a decrease in fixed costs. Calypso wants to have 50% of next month’s sales needs on hand at the end of a month. If Calypso has an average
D. variable costs and no change in fixed costs. gross profit of 40%, what are the February 28 purchases?
A. P465,000 C. P775,000
32. In preparing a cash budget, which of the following is normally the starting point for projecting cash B. P310,000 D. P428,000
requirements?
A. Fixed assets. C. Accounts receivable. iv
. Blue Company budgeted purchases of P100,000. Cost of sales was P120,000 and the desired ending inventory
B. Sales. D. Inventories. was P42,000. The beginning inventory was
A. P20,000 C. P42,000
52. Recognition of the many uncertainties in budgeting is exemplified by companies normally B. P32,000 D. P62,000
A. forecasting sales
B. establishing minimum required cash balances v
. The payment schedule of purchases made on account is: 60% in the time period of purchase, 30% in the
C. forecasting only fixed costs following time period, and 10% in the subsequent time period. Total credit purchases were P200,000 in May,
D. omitting expected dividend payments from budgeted disbursements and P100,000 in June. Total payments on credit purchases were P140,000 in June. What were the credit
purchases in the month of April?
19. Which of the following statements is True? A. P200,000 C. P145,000
A. Under zero-based budgeting, a manager is required to start at zero budget levels each period, as if the B. P100,000 D. P215,000
programs involved were being initiated for the first time.
B. The primary purpose of the cash budget is to show the expected cash balance at the end of the budget Production budget
period. vi
. Montalban Company’s sales budget shows the following expected sales for the following year:
C. Budget data are generally prepared by top management and distributed downward in an organization.
Quarter Units
D. The budget committee is responsible for preparing detailed budget figures in an organization.
First 120,000
Second 160,000
23. Which of the following is a valid statement?
Third 90,000
A. Responsibility budget identifies revenue and costs with the individual responsible for their incurrence.
B. The best way to establish budget figures is to use last year’s actual cost and activity data as this year’s budget
estimates. v
. Answer: A
C. A sales budget and a sales forecast are the same thing.
D. The primary purpose of the cash budget is to show the expected cash balance at the end of the budget Total payments for purchases in June P140,000
period. Deduct payments applicable to purchase of:
June (P100,000 x 0.6) P60,000
PROBLEMS: May (P200,000 x 0.30) 60,000 120,000
Cost estimation formula
i
. Management has prepared a graph showing the total costs of operating branch warehouses throughout the Payments applicable to April purchase P 20,000
country. The cost line crosses the vertical axis at P400,000. The total cost of operating one branch is Credit purchase in April: P20,000  0.10 P200,000
P650,000. The total cost of operating ten branches is P2,900,000. For purposes of preparing a flexible budget

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Fourth 110,000 There are 300,000 finished units in the inventory on June 30. Each unit of finished product requires four pounds
Total 480,000 of direct materials at a cost of P2.50 per pound. There are 800,000 pounds of direct materials in the inventory
The inventory at December 31 of the prior year was budgeted at 36,000 units. The quantity of finished goods on June 30.
inventory at the end of each quarter is to equal 30% of the next quarter’s budgeted sales of units. How many units should be produced for the three-month period ending September 30?
How much should the production budget show for units to be produced during the first quarter? A. 1,260,000 C. 1,331,440
A. 48,000 C. 132,000 B. 1,328,000 D. 1,424,050
B. 96,000 D. 144,000
Ending inventory budget
viii
vii
. Lorie Company plans to sell 400,000 units of finished product in July an anticipates a growth rate in sales of 5% . If the required direct materials purchases are 8,000 pounds and the direct materials required for production is
per month. The desired monthly ending inventory in units of finished product is 80% of the next month’s three times the direct materials purchases, and the beginning direct materials are three and a half times the
estimated sales. direct materials purchases, what are the desired ending direct material in pounds?
A. 20,000 C. 12,000
i B. 4,000 D. 32,000
. Answer: A
The amount of fixed costs in operating branches’ 10 warehouses is P400,000 (the fixed cost Raw materials usage budget
line intercepts the vertical axis). ix
. Minerva Company sells a single product. Budgeted sales for the year are anticipated to be 640,000 units. The
Total operating costs P2,900,000 estimated beginning and ending finished goods inventory are 108,000 and 90,000, respectively. A production of
one unit requires the following materials:
Less fixed costs 400,000 Material LL 0.50 lb. @ P0.60
Total variable costs (10 warehouses) P2,500,000 Material MM 1.00 lb. @ P1.70
Variable costs per branch: P2,500,000  10 P 250,000 Material NN 1.20 lb. @ P1.00
What are the respective peso amounts of each material to be used in
ii
. Answer: A production during the year?
Cost of units sold (0.65 x P800,000) P520,000 Material LL Material MM Material NN
Add Desired ending inventory 140,000 A. P181,200 P1,026,800 P724,800
Total cost of goods available for sale 660,000 B. P181,200 P1,026,800 P746,400
C. P186,600 P1,057,400 P746,400
Deduct Beginning inventory 130,000 D. P186,600 P1,057,400 P724,800
Budgeted purchases P530,000
Raw materials purchases budget
iii x
. If there were 30,000 pounds of raw material on hand on January 1, 60,000 pounds are desired for inventory at
. Answer: A
Cost of goods sold P750,000 x 0.6 P450,000 December 31, and 180,000 pounds are required for annual production, how many pounds of raw material should
be purchased during the year?
Add Ending Inventory P800,000 x 0.6 x 0.5 240,000 A. 150,000 pounds C. 120,000 pounds
Total available for sale P690,000 B. 240,000 pounds D. 210,000 pounds
Deduct Beginning inventory P450,000 x 0.5 225,000
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Budgeted purchases, February P465,000 . Silver Bowl Company manufactures a single product. It keeps its inventory of finished goods at 75% the coming
month’s budgeted sales. It also keeps its inventory of raw materials at 50% of the coming month’s budgeted
production. Each unit of product requires two pounds of materials. The production budget is, in units: May, 1,000;
iv
. Answer: D June, 1,200; July, 1,300; august, 1,600. Raw material purchases in July would be
Cost of sales P120,000 A. 1,525 pounds C. 2,550 pounds
Add Desired ending inventory 42,000 B. 2,900 pounds D. 3,050 pounds
Total available for sale 162,000 xii
. Each unit of finished product uses 6 kilograms of raw materials. The production and inventory budgets for May
Deduct Budgeted purchases 100,000 2007 are as follows:
Beginning inventory P 62,000 Beginning Inventory:
Finished goods 15,000 units

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Raw materials 21,000 kg.

Budgeted unit sales 18,000 units xvi
. Diliman Corporation includes the following quarterly budget for production:
Planned ending inventory
Quarter Production
Finished goods 11,400 units
First 60,000 units
Raw materials 24,400 kg.
Second 45,000 units
During the production process, it is usually found that 10% of production units are scrapped as defective and this
Third 40,000 units
loss occurs after the raw materials have been placed in process.
Fourth 65,000 units
How many kilograms of raw materials should be purchased in June?
A. 89,800 C. 96,000 Each unit of product requires 2.5 kilograms of direct materials. The company begins each quarter with inventory
B. 98,440 D. 99,400 of direct materials equal to 25 percent of the total quarter’s material requirements.
What is the budgeted purchases of materials for the second quarter?
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. Violet Company manufactures a single product. It keeps its inventory of finished goods at twice the coming month’s A. 113,750 C. 46,250
budgeted sales, inventory of raw materials at 150% of the coming month’s budgeted production requirements. B. 109,375 D. 112,500
Each unit of product requires two pounds of materials. The production budgets in units consist of the following:.
May 1,000 Indirect labor costs
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June 1,200 . Namuco, Inc. uses flexible budgeting for cost control. During the month of September, Namuco, Inc. produced
July 1,300 14,500 units of finished goods with indirect labor costs of P25,375. Its annual master budget reflects an indirect
August 1,600 labor costs, a variable cost, of P360,000 based on an annual production of 200,000 units. In the preparation of
Raw material purchases in June would be performance analysis for the month of September, how much flexible budget should be allowed for indirect labor
A. 2,600 pounds C. 2,400 pounds costs?
B. 1,800 pounds D. 2,700 pounds A. P30,000 C. P25,375
B. P29,167 D. P26,100
xiv
. Sales Company is budgeting
sales of 300,000 units of its only product for the coming Cash receipts budget
year. Production of one unit of product requires three pounds of Material Q Sales
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and 2 pounds of Material L. Inventory units at the beginning of the year are: . Generous Company began its operations on January 1 of the current year. Budgeted sales for the first quarter
are P240,000, P300,000, and P420,000, respectively, for January, February and March. Generous Company
Actual, Jan. 1 Budgeted, Dec 31
expects 20% of its sales cash and the remainder on account. Of the sales on account, 70% are expected to be
Finished goods 60,000 50,000
collected in the month of sale, 25% in the month following the sale, and the remainder in the following month.
Material Q 80,000 60,000
How much should Generous receive from sales in March?
Material L 88,000 96,000
A. P304,800 C. P388,800
How many pounds of Material Q is Sales planning to buy during the coming year? B. 294,000 D. P295,200
A. 850,000 C. 862,000
B. 890,000 D. 908,000 Credit sales
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. Mendrez Company has a collection schedule of 60% during the month of sales, 15% the following month, and
xv
. The following beginning and ending
Strama Company prepares its budgets on annual basis. 15% subsequently. The total credit sales in the current month of September were P80,000 and total collections
inventory unit levels are planned for the fiscal year of June 1, 2006 through in September were P57,000. What were the credit sales in July?
A. P90,000 C. P45,000
May 31, 2007. B. P30,000 D. P32,000
June 1, 2006 May 31, 2007
Raw material* 40,000 50,000 Cash collections
Work-in-process 10,000 10,000 xx
. Obligacion Company has P299,000 in accounts receivable on January 1, 2006. Budgeted sales for January are
Finished goods 80,000 50,000 P860,000. Obligacion expects to sell 20% of its merchandise for cash. Of the remaining sales, 75% are
*Two (2) units of raw material are needed to produce each unit of finished product. expected to be collected in the month of sale and the remainder the following month.
If 500,000 finished units were to be manufactured during the 2006-2007 fiscal year by Strama Company, the The January cash collections from sales are:
units of raw material needed to be purchased would be A. P815,000 C. P471,000
A. 1,000,000 units C. 1,020,000 units B. P691,000 D. P987,000
B. 1,010,000 units D. 990,000 units

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xxi
. Adel Company has the following sales forecasts for the selected three-month
Collections on sales: 60% in month of sale
period in 2007: 30% in month following sale
Month Sales 10% in second month following sale
April P12,000 The accounts receivable balance on January 1 of the current year was P70,000, of which P50,000 represents
May 7,000 uncollected December sales and P20,000 represents uncollected November sales.
June 8,000 The total cash collected by Le Amore Company during the month of January would be:
Seventy percent of sales are collected in the month of the sale, and the remainder is collected in the following A. P410,000 C. P344,000
month. B. P254,000 D. P331,500
Accounts receivable balance (April 1, 2007) P10,000
Cash balance (April 1, 2007) 5,000 Accounts receivable balance
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Minimum cash balance is P5,000. Cash can be borrowed in P1,000 increments from the local bank (assume no . As of January 1, 2007, the Liberal Sales Company had an account receivable of P500,000. The sales for
interest charges). January, February, and March were as follows: P1,200,000, P1,400,000 and P1,500,000, respectively. Of each
How much cash would be collected in June from sales? month’s sales, 80% is on account. 60% of account sales is collected in the month of sale, with remaining 40%
A. P 7,700 C. P 8,000 collected in the following month.
B. P 8,500 D. P10,000 What is the accounts receivable balance as of March 31, 2007?
A. P720,000 C. P587,200
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. The Avelina Company has the following historical pattern on its credit sales. B. P480,000 D. P600,000
70 percent collected in month of sale
15 percent collected in the first month after sale Credit to accounts receivable
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10 percent collected in the second month after sale . Ironman Company is preparing its cash budget for the month ending November 30. The following information
4 percent collected in the third month after sale pertains to Ironman’s past collection experience from its credit sales:
2 percent uncollectible Current month’s sales 12%
The sales on open account have been budgeted for the last six months of 2007 are shown below: Prior month’s sales 75%
July P 60,000 Sales two months prior to current month 6%
August 70,000 Sales three months prior to current month 4%
September 80,000 Cash discounts (2/30, net/90) 2%
October 90,000 Doubtful accounts 1%
November 100,000 Credit sales:
December 85,000 November – estimated P2,000,000
The estimated total cash collections during the fourth calendar quarter from sales made on open account during October 1,800,000
the fourth calendar quarter would be September 1,600,000
A. P172,500 C. P265,400 August 1,900,000
B. P230,000 D. P251,400 How much is the estimated credit to Accounts Receivable as a result of collections expected during November?
A. P1,730,200 C. P1,762,000
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. The Le Amore Company had the following budgeted sales for the first half of the current B. P1,757,200 D. P1,802,000
year:
Cash Sales Credit Sales Increase in accounts receivable
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. Lazaro Company will open a new store on January 1. Based on experience from its other retail outlets, Lazaro is
January P70,000 P340,000
making the following sales projections:
February 50,000 190,000
March 40,000 135,000
April 35,000 120,000 Cash Sales Credit Sales
May 45,000 160,000 January P600,000 P400,000
June 40,000 140,000 February 300,000 500,000
March 400,000 600,000
The company is in the process of preparing a cash budget and must determine the expected cash collections by April 400,000 800,000
month. To this end, the following information has been assembled:

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Lazaro estimates that 70% of the credit sales will be collected in the month following the month of the sale, with Sales:
the balance collected in the second month following the sale. Based on these data, the balance in accounts a. Each month’s sales are billed on the last day of the month.
receivable on January 31 will be increased by b. Customers are allowed a 3 percent discount if payment is made within 10 days after the
A. 400,000 C. P120,000 billing date. Receivables are booked gross.
B. P280,000 D. P580,000 c. Sixty percent of the billings are collected within the discount period, twenty-five percent are
collected by the end of the month, nine percent are collected by the end of the second month, and six
Cash disbursements percent are considered entirely uncollectible.
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. Cascades Company, a merchandising firm, is preparing its master budget and has gathered the following data
to help budget cash disbursements: Purchases:
Budgeted data: 1. Fifty four percent of all purchases and selling, general, and administrative expenses are paid in the
Cost of goods sold P1,680,000 month purchased and the remainder in the following month.
Desired decrease in inventories 70,000 2. Each month’s units of ending inventory is equal to one hundred thirty percent of the next month’s units
Desired decrease in Accounts Payable 150,000 of sales.
All of the accounts payables are for inventory purchases and all inventory items are purchased on account. 3. The cost of each unit of inventory is P200.
What are the estimated cash disbursements for inventories for the budget period? 4. Selling, general, and administrative expenses, of which P20,000 is depreciation, are equal to fifteen
A. P1,460,000 C. P1,900,000 percent of the current month’s sales.
B. P1,600,000 D. P1,760,000
xxviii
Actual and projected sales are as follows:
. Albatross Company started its commercial operations on September 30 of the current year. Projected
UNITS PESOS
manufacturing costs for the first three months of operations are P1,568,000, P1,952,000, and P2,176,000,
November 11,800 P3,540,000
respectively. Depreciation, insurance, and property taxes represent P288,000 of the estimated manufacturing
December 12,100 3,630,000
costs. Insurance was paid on September 30, and property taxes will be paid in July next year. Seventy-five
January 11,900 3,570,000
percent of the remainder of the manufacturing costs are expected to be paid in the month in which they are
February 11,400 3,420,000
incurred, with the balance to be paid in the following month. The cash payments for manufacturing costs in the
March 12,000 3,600,000
month of November are:
April 12,200 3,660,000
A. P1,568,000 C. P1,664,000
B. P1,952,000 D. P1,856,000 xxx
. The respective amounts of budgeted purchases for the months of January and February are:
Ending cash balance A. P2,418,000 and P2,360,000 C. P2,250,000 and P2,436,000
xxix
. Albania Company expects its June sales to be P300,000, which is 25% higher than its May sales. Purchases B. P2,380,000 and P2,280,000 D. P3,570,000 and P3,420,000
were P200,000 in May and are expected to be P240,000 in June. All sales are on credit and are collected as xxxi
follows: 80% in the month of the sale and 20% in the following month. All payments in the month of sales are . The budgeted cash disbursements for the month of February are:
given 2% discount. Sixty percent of purchases are paid in the month of purchase to take advantage of purchase A. P2,929,000 C. P2,949,000
term of 1/10, n/40. The remaining amount is paid in the following month. The beginning cash balance on June 1 B. P2,873,790 D. P2,853,790
is P20,000. The ending cash balance on June 30 would be: xxxii
A. P64,160 C. P80,640 . The amount of cash collected from sales during the month of January is:
B. P73,000 D. P85,440 A. P3,338,760 C. P3,404,100
B. P3,551,160 D. P3,556,560
Comprehensive
Question Nos. 30 through 33 are based on the following information:
Apollo Merchandiser asks your services to develop cash and other budget information for the first quarter of 2007. In
December 31, the store had the following balance:
Cash P 55,000
Accounts receivable 4,370,000
Inventories 3,094,000
Accounts payable 1,330,550

The following information are relevant to 2007 operations:

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 Budgeting
xxxiii
. The number of units to be purchased during the month of March is: April (Actual) P390,000 P200,000
A. 15,860 C. 12,000 May (Actual) 420,000 220,000
B. 12,260 D. 15,600 June (forecast) 390,000 210,000
July (forecast) 350,000 240,000
Rajah Enterprises is a growing retailer of home care products. During the first four months of the following year, it August (forecast) 420,000 320,000
forecasts the following sales and purchases: September (forecast) 410,000 230,000

Sales Purchases The company makes 10 percent of its sales for cash and 90 percent on credit. Of the credit sales, 30 percent are
January P7,200,000 P4,200,000 collected in the month after the sale and 70 percent are collected two months after. Super Sales pays for 45 percent of its
February 6,600,000 4,800,000 purchases in the month after purchase and 55 percent two months after.
March 6,000,000 3,600,000
April 7,800,000 5,400,000 Labor expense equals 15 percent of the current month's sales. General overhead expense equals P10,000 per month.
Rajah collects 70% of sales is collection during the month of sale, 20% the following month and 9% in the second Interest payments of P35,000 are due in June and September. A cash dividend of P25,000 is scheduled to be paid in
month. 1% of sales are deemed uncollectible. June. Tax payments of P30,000 are due in June and September. There is a scheduled purchase for cash of an
equipment, P290,000 in September.
In order to fully avail of the 2% discount, Rajah pays all the purchases by the tenth of the month following the month
of purchase. Super Sales’ ending cash balance in May is P25,000. The minimum desired cash balance is P20,000. The maximum
desired cash balance is P50,000. Excess cash (above P50,000) is used to buy marketable securities. Marketable
Sales for the month of May are expected to be P6,600,000 and the amount of purchases are P6,000,000. Operating securities are sold before borrowing funds in case of a cash shortfall (less than P20,000).
expenses to be paid during the month of May will be P1,440,000 and the cash balance by May 1 is P2,200,000.
xxxvi
. During the month of June, Super Sales expects to receive cash from sales amounting to:
The Atlanta Corporation has forecast the following sales for the first seven months of the year: A. P606,000 C. P398,100
B. P408,900 D. P359,100
January P120,000 May P120,000
xxxvii
February 160,000 June 200,000 . The cumulative amount of marketable securities purchased as of July 31 amounts to:
March 180,000 July 220,000 A. P126,000 C. P143,300
April 240,000 B. 132,500 D. P 0
xxxviii
Monthly material purchases are set equal to 20 percent of forecasted sales for the next month. Of the total material costs, . The amount of loan to be obtained to maintain a balance of P50,000 cash as of September 30 will be:
40 percent are paid in the month of purchase and 60 percent in the following month. Labor costs will run P60,000 per A. P109.4 C. P 9.4
month, and fixed overhead is P30,000 per month. Interest payments on the debt will be P45,000 for both March and B. P 59.4 D. P 0.0
June. Finally, Atlanta’s sales force will receive a 3 percent commission on total sales for the first six months of the year,
to be paid on June 30. Question Nos. 39 through 45 are based on the following data:
The Ingo Corporation makes standard-size 2-inch fasteners, which it sells for P155 per thousand. Irine Tee, the major
xxxiv
. How much will be paid in the month of January for the purchase of materials? stockholder, manages the inventory and finances of the company. She estimates sales for the following months to be:
A. P 27,200 C. P137,856
B. P117,200 D. P 33,600 January P263,500 (1,700,000 fasteners)
February P186,000 (1,200,000 fasteners)
xxxv
. How much does Atlanta plan to disburse in the month of June? March P217,000 (1,400,000 fasteners)
A. P 41,600 C. P207,200 April P310,000 (2,000,000 fasteners)
B. P100,000 D. P117,200 May P387,500 (2,500,000 fasteners)

Question Nos. 36 through 38 are based on the following: Last year Ingo Corporation's sales were P175,000 in November and P232,500 in December (1,500,000 fasteners).
Super Sales’ actual sales and purchases for April and May are shown here along with forecasted sales and purchases
for June through September. Ms. Tee is preparing for a meeting with Peninsula Banking Corporation to arrange the financing for the first quarter.
Based on her sales forecast and the following information she has provided, you have to prepare a monthly cash budget,
Sales Purchases a monthly and quarterly pro forma income statement, a pro forma quarterly balance sheet, and all necessary supporting

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 Budgeting

schedules for the first quarter. Total Liabilities and Stockholders’ Equity P1,387,800

Past history shows that Ingo Corporation collects 50 percent of its accounts receivable in the normal 30-day credit period xxxix
. The budgeted production respective to each month of the first quarter of the coming year are:
(the month after the sale) and the other 50 percent in 60 days (two months after the sale). It pays for its materials 30 A. 1,400,000; 2,000,000; 2,500,000 C. 2,500,000; 2,000,000; 1,400,000
days after receipt. In general, Ms. Tee likes to keep a two-month supply of inventory in anticipation of sales. Inventory at B. 1,400,000; 2,500,000; 2,000,000 D. 2,000,000; 1,400,000; 2,500,000
the beginning of December was 2,600,000 units. (This was not equal to her desired two-month supply.)
xl
. The amount of accounts payable paid in March for the purchase of materials is:
The major cost of production is the purchase of raw materials in the form of steel rods, which are cut, threaded, and A. P150,000 C. P104,000
finished. Last year raw material costs were P52 per 1,000 fasteners, but Ms. Tee has just been notified that material B. P120,000 D. P130,000
costs have risen, effective January 1, to P60 per 1,000 fasteners. The Ingo Corporation uses FIFO inventory accounting.
Labor costs are relatively constant at P20 per thousand fasteners, since workers are paid on a piecework basis. xli
. The expected cash collections on accounts receivable in the month of February are:
Overhead is allocated at P10 per thousand units, and selling and administrative expense is 20 percent of sales. Labor A. P224,750 C. P 93,000
expense and overhead are direct cash outflows paid in the month incurred, while interest and taxes are paid quarterly. B. P248,000 D. P186,000

The corporation usually maintains a minimum cash balance of P25,000, and it puts its excess cash into marketable xlii
. The amount of accounts receivable outstanding as of March 31, 2007 is:
securities. The average tax rate is 40 percent, and the company usually pays out 50 percent of net income in dividends A. P217,000 C. P310,000
to stockholders. Marketable securities are sold before funds are borrowed when a cash shortage is faced. Ignore the B. P224,750 D. P108,500
interest on any short-term borrowings. Interest on the long-term debt is paid in March, as are taxes and dividends.
xliii
. The cost of goods sold for the first quarter of the coming year amounts to:
As of year-end, the Ingo Corporation balance sheet was as follows: A. P363,800 C. P426,400
Ingo Corporation B. P453,600 D. P373,400
Balance Sheet
December 31, 2006 xliv
. The total cash and marketable securities as of January 31 will be:
A. P45,450 C. P91,800
ASSETS B. P25,000 D. P54,450
Current assets:
Cash P 30,000 xlv
. The expected net income during the first quarter of the coming year is:
Accounts receivable 320,000 A. P 91,080 C. P 96,840
Inventory 237,800 B. P161,400 D. P151,800
Total current assets 587,800
Plant and equipment, net of accumulated depreciation of P200,000 800,000 Question Nos. 46 through 48 are based on the Russon Corporation, a retailer whose sales are all made on credit. Sales
Total Assets P1,387,800 are billed twice monthly, on the 10th of the month for the last half of the prior month’s sales, and on the 20th of the month
for the first half of the current month’s sales. The terms of all sales are 2/10, net 30. Based upon past experience, the
LIABILITIES AND STOCKHOLDERS’ EQUITY collection of accounts receivable is as follows:
Accounts payable P 93,600
Long-term debt, 8% 400,000 Within the discount period 80%
Common stock 504,200 On the 30th day 18%
Retained earnings 390,000 Uncollectible 2%

vi Russon’s average markup on its products is 20% of the sales price. All sales and purchases occur uniformly throughout
. Answer: C the month. The sales value of shipments for May and the forecasts for the next four months follow:
Budgeted sales, First Quarter 120,000 units May (actual) P500,000
Add Required Ending Finished goods: 30% x 160,000 48,000 units June 600,000
July 700,000
Total units required 168,000 units
August 700,000
Less Beginning Finished goods 36,000 units September 400,000
Budgeted production in units 132,000 units Russon purchases merchandise for resale to meet the current month’s sales demand and to maintain a desired monthly
ending inventory of 25% of the next month’s sales. All purchases are on credit with terms of net/30. Russon pays for

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 Budgeting

50% of a month’s purchases in the month of purchase and 50% in the month following the purchase.
xlvi
. How much cash can Russon plan to collect in September from sales made in August?
A. P337,400 C. P400,400
B. P343,000 D. P280,000
xlvii
. The budgeted peso value of Russon’s inventory on August 31 will be
A. P110,000 C. P112,000
B. P 80,000 D. P100,000
xlviii
. How much cash can Russon plan to collect from accounts receivable during July?
A. P574,000 C. P619,000
B. P662,600 D. P608,600

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 Budgeting

vii
. Answer: C
Sales for three-month period:
July 400,000
August 400,000 x 1.05 420,000
September 420,000 x 1.05 441,000
Total 1,261,000

Inventory, September 30 (441,000 x 1.05 x 0.8) 370,440

Total Requirements 1,631,440
Less July Inventory 300,000
Budgeted Production 1,331,440
viii
. Answer: C
Beginning Inventory (8000 x 3.5) 28,000
Required Purchases 8,000
Direct Materials Used for Production (8000 x 3) (24,000)
Desired Ending Inventory 12,000
ix
. Answer: C
LLMMNNBudgeted production622,000622,000622,000Required materials per unit of product0.501.001.2Materials required311,000622,000746,400Unit cost P0.60 P1.70 P1.00 Peso amounts
of materials used by units produced
P186,600
P1,057,400
P746,400
Budgeted sales in units 640,000
Add Finished goods, end 90,000
Total 730,000
Deduct Finished goods, beginning 108,000
Budgeted production 622,000

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 Budgeting

x
. Answer: D
Required pounds by production 180,000
Ending raw materials required 60,000
Beginning raw materials ( 30,000)
Budgeted purchases 210,000
xi
. Answer: B
Materials required by June production 1,300 x 2 2,600
Add Ending raw materials inventory 1,600 x 2 x 0.5 1,600
Total materials required 4,200
Deduct Beginning materials inventory 1,300 x 2 x 0.5 1,300
Materials to be purchased 2,900
xii
. Answer: D
Budgeted sales 18,000
Add Finished goods inventory, end 11,400
Total 29,400
Deduct Finished good inventory, beginning 15,000
Budgeted production 14,400

Raw materials required by production (14,400 x 6  0.9) 6,000

Desired Raw materials inventory end 24,400
Total 120,400
Deduct Raw materials inventory, beginning 21,000
Budgeted purchase of raw materials 99,400

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 Budgeting

xiii
. Answer: D
Raw materials required by June production: 1,200 x 2 2,400
Add: Ending materials inventory 1,300 x 2 . 1.5 3,900
Total materials required 6,300
Deduct Beginning material inventory 2,400 x 1.5 3,600
Budgeted materials purchase 2,700
xiv
. Answer: A
Budgeted sales 300,000
Less decrease in Finished goods inventory 10,000
Budgeted production 290,000

Material Q required by production 290,000 x 3 870,000

Less decrease in Material Q inventory 60,000 – 80,000 20,000
Budgeted purchase in pounds, Material Q 850,000
xv
. Answer: B
Materials required by production 500,000 x 2 1,000,000
Increased in materials inventory (50,000 – 40,000) 10,000
Purchases 1,010,000
xvi
. Answer: B
Materials required by 2nd Quarter’s production 45,000 x 2.5 kgs. 112,500
Add: Materials inventory, end: 40,000 x 2.5 x0.25 25.000
Total materials required 137,500
Less: Materials inventory, beginning: 112,500 x 0.25 28,125
Total budget purchases in kilograms 109,375
xvii
. Answer: D
Under flexible budget, analysis should be based on actual level achieved.
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 Budgeting

xviii
. Answer: C
Cash sales (March) 0.2 x P420,000 P 84,000
Collections of account sales:
March sales: (P420,000 x 0.8 x 0.7) 235,200
February sales: (P300,000 x 0.8 x 0.25) 60,000
January sales: (P240,000 x 0.8 x .05) 9,600
Total cash from sales P388,800
xix
. Answer: B
Total cash collections P57,000
Deductions collections on September sales (P80,000 x 0.6) 48,000
Collections applicable to July and August sales P 9,000
Credit sales in July: P9,000  2  0.15 P30,000
xx
. Answer: D
Collections from:
January sales (P860,000 x 0.8 x 0.75) P516,000
December sales (January 1 Accounts) 299,000
Collections of credit sales 815,000
Cash sales (P860,000 x 0.2) 172,000
Total cash received P987,000
xxi
. Answer: A
Collections sales of:
June: P8,000 x 0.7 P5,600
May: P7,000 x 0.3 2,100
Total collections from sales P7,700
xxii
. Answer: B
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 Budgeting

xxiii
. Answer: D
Cash sales P 70,000
Collections from account sales:
January (P340,000 x 0.60) 204,000
December (P50,000 x 30/40) 37,500
November 20,000
Total cash receipts in January P331,500
xxiv
. Answer: B
The balance of Accounts Receivable, based on the collection pattern for Liberal Sales Company, equals 40 percent of credit sales for that month:
P1,500,000 x 0.8 x 0.4 = P480,000
xxv
. Answer: C
Gross receivable collected month’s sales
November 2,000,000 x .12 P 240,000
October 1,800,000 x .75 1,350,000
September 1,600,000 x .06 96,000
August 1,900,000 x .04 76,000
Total credit P1,762,000
xxvi
. Answer: A
The balance of Accounts Receivable as of January 31, its first month of operations, will increase by P400,000 because the first collection on account sales will be in February.
However, a question of how much increase in Accounts Receivable in February will equal to the difference between the February credit sales and 70% of January sales.
xxvii
. Answer: D
Cost of goods sold P1,680,000
Deduct desired decrease in inventories 70,000
Budgeted purchases P1,610,000
Add decrease in Accounts Payable 150,000
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 Budgeting

xxix
. Answer: C
Beginning Cash P 20,000
Add:Cash collected on June's sales (P300,000 x .8 x .98) 235,200
Cash collected on May's sales ((P300,000/1.25) x .2) 48,000 283,200
Total P303,200
Less:Cash paid on June's purchases (P240,000 x .6 x .99) 142,560
Cash paid on May's purchases (P200,000 x .4) 80,000 222,560
Ending cash balance P80,640
xxx
. Answer: C
JanuaryFebruaryBudgeted sales11,90011,400Add: Ending inventory (130%)14,82015,600Total26,72027,000Less: Beginning inventory15,47014,820Budgeted purchases (units)11,25012,180Unit
purchase price 200 200 Budgeted peso purchasesP2,250,000P2,436,000
Budgeted inventories:
December 31 130% x 11,900 15,470
January 31 130% x 11,400 14,820
February 28 130% x 12,000 15,600
March 31 130% x 12,200 15,860
xxxi
. Answer: D
Payments for:
February purchases 54% x P2,436,000 P1,315,440
January purchases 46% x P2,250,000 1,035,000
Total payments for purchases P2,350,440
Selling, general and administrative expenses:
February: [(P3,420,000 x 0.15) – P20,000]0.54 266,220
January: [(P3,570,000 x 0.15) – P20,000]0.46 237,130
Total cash disbursements P2,853,790
xxxii
. Answer: A
Billings of December 31:
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 Budgeting

xxxiii
. Answer: B
Budgeted March sales 12,000
Add: Ending inventory units 15,860
Total units required 27,860
Less: Beginning inventory units 15,600
Budgeted purchases in units, March 12,260
xxxiv
. Answer: A
Payments for purchases in the month of:
December (0.2 x P120,000 x 0.6) P14,400
January (0.2 x P160,000 x 0.4) 12,800
Total January disbursements for purchases P27,200
xxxv
. Answer: C
Payments for purchases:
May purchase (0.2 x P200,000 x 0.6) P24,000
June purchase (0.2 x P220,000 x 0.4) 17,600
Total 41,600
Labor costs 60,000
Fixed Overhead 30,000
Interest payments 45,000
Commission (0.03 x P1,020,000) 30,600
Total disbursements P207,200
xxxvi
. Answer: C
June cash sales (P390,000 x 0.1) P 39,000
Collections from account sales:
April sales (P390,000 x 0.9 x 0.7) 245,700
May sales (P420,000 x 0.9 x 0.3) 113,400
Total cash receipts, June P398,100
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 Budgeting

xxxviii
. Answer: A
Cash Budget (P’000)
JuneJulyAugSeptCash receiptsP398.1P404.9P382.2P374.9Cash disbursements 367.5 278.0 296.5 702.5Net cash inflow (outflow) 30.6 126.9 85.7( 327.6)Beginning cash balance 25.0 50.0 50.0
50.0Cumulative cash balance 55.6 176.9 135.7( 277.6)M/S sold (purchased) - 5.6- 126.9- 85.7 218.2Cash loan 0.0 0.0 0.0 109.4Cash balance, endP 50.0P 50.0P 50.0P 50.0
Cash Receipts (P’000)
JuneJulyAugSeptAccount sales (90%)P351.0P315.0P378.0P369.0Cash salesP 39.0P 35.0P 42.0P 41.0Collection of accounts First month (30%) 245.7 105.3 94.5 113.4 Second month (70%)
113.4 264.6 245.7 220.5TotalP398.1P404.9P382.2P374.9
Cash Payments (P’000)
JuneJulyAugSeptPurchasesP210.0P240.0P320.0P230.0First month (45%)P 99.0P 94.5P108.0P144.0Second month (55%) 110.0 121.0 115.5 132.0 Total purchases paid 209.0 215.5 223.5
276.0Labor 58.5 52.5 63.0 61.5General overhead 10.0 10.0 10.0 10.0Interest 35.0 35.0Cash dividend 25.0Taxes 30.0 30.0Purchase of equipt. 290.0Total
paymentsP367.5P278.0P296.5P702.5
xxxix
. Answer: A
Budgeted Production
JanuaryFebruaryMarchTotalSales1,700,0001,200,0001,400,0004,300,000Inventory, end2,600,0003,400,0004,500,0004,500,000Total4,300,0004,600,0005,900,0008,800,000Inventory, beg.
(2,900,000(2,600,000(3,400,000(2,900,000Budgeted production1,400,0002,000,0002,500,0005,900,000
xl
. Answer: B
Payments for Purchases:
January (December purchases - 1,800,000 x 0.052) P 93,600
February (January purchases – 1,400,000 x 0.06) 84,000
March (February purchases – 2,000,000 x 0.06) 120,000
Total for the quarter P297,600
xli
. Answer: B
Budgeted Collections on Accounts Receivable
JanuaryFebruaryMarchTotalNovember sales87,50087,500December sales116,250116,250232,500January sales131,750131,750263,500February sales
93,00093,000Total203,750248,000224,750676,500
xlii
. Answer: C
A month’s sales is collected 50 percent each in the first and second month. Therefore, the accounts receivable outstanding as of March 31 includes March’s sales as well as 50 percent of February sales.
February’s accounts (P186,000 x 0.5) P 93,000
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 Budgeting

March’s sales 217,000

Outstanding accounts receivable, March 31 P310,000
xliv
. Answer: A
JanuaryFebruaryMarchCash collections203,750248,000224,750Cash disbursements Payments for materials93,60084,000120,000 Labor expenses28,00040,00050,000 Overhead14,00020,00025,000
Selling & administrative52,70037,20043,400 Interest8,000 Taxes64,560 Dividends . . 48,420 Total disbursements188,300181,200359,380 Net Cash Inflow
(Outflow)15,45066,800(134,630)Cash Balance, Beginning30,00025,00025,000Cumulative cash balance45,450 91,800(109,630)Marketable securities20,45066,800( 87,250) Cumulative
MS20,45087,250Borrowings 0 0 47,380Cash Balance, End25,000112,25025,000
xlv
. Answer: C
Proforma Income Statement
JanuaryFebruaryMarchTotalSales263,500186,000217,000666,500Cost of goods sold139,40098,400126,000363,800Gross profit124,10087,60091,000302,700Selling expenses,
20%52,70037,20043,400133,300Operating income71,40050,40047,600169,400Interest expense2,6672,6672,6668,000Income before tax68,73347,73344,934161,400Income tax,
40%27,49319,09317,97464,560Net income41,24028,64026,96096,840
xlvi
. Answer: A
August sales
Billed 8/20 P350,000 x 18% P 63,000
Billed 9/10 P350,000 x 80% x 98% 274,400
Collections in Sept of Aug sales P337,400
xlvii
. Answer: B
Russon provides 25 percent of next month’s quantity sales.
25% x P400,000 x 80% = P80,000
xlviii
. Answer: D
May sales billed June 10 250,000x18% P 45,000
June Sales:
Billed June 20 300,000 x 18% 54,000
Billed July 10 300,000 x .80 z .98 235,200
July sales
Billed July 20 P350,000 x .80 x .98 P274,400
July Collections P608,600

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 Budgeting

xxxvii
. Answer: B
Marketable securities purchased on:
June P 5,600
July 126,900
Cumulative purchase of MS P132,500

Collections with 3% discount P3,630,000 x 0.6 x 0.97 P2,112,660

Collections end of January P3,630,000 x 0.25 907,500
Billings of November 30: P3,540,000 x 0.09 318,600
Total collections P3,338,760

Budgeted payments for purchases P1,760,000

xxviii
. Answer: A
November costs (P1,952,000 – P288,000) x 0.75 P1,248,000
October costs (P1,568,000 – P288,000) x 0.25) 320,000 Material P 52
Total disbursements P1,568,000 Labor 20
Overhead 10
October 90,000 x .95 P 85,500 Total P 82
November 100,000 x .85 85,000
December 85,000 x .70 59,500 Effective January 1, 2007, the price of materials will be raised to P60. The unit cost for 2007
Fourth quarter sales collected in fourth quarter P230,000 production will be P90. Since the sales of January and February come from December
production, only the March sales will have cost of P90 per thousand.
Indirect labor cost per unit (P360,000  200,000 units) P1.80
Flexible budget allowance: 14,500 units x P1.80 P26,100 January and February cost of goods sold (1,700 + 1,200) x P82 P237,800
March 1,400 x P90 126,000
xliii
. Answer: A Cost of goods sold (first quarter) P363,800
Current unit cost per 1,000
453