DISCUSSION MATERIAL PROF. JON D.

INOCENTES,CPA

PROBLEM 1
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

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.

PROBLEM 2
Webster Company has the following sales budget.

January P200,000
February P240,000
March P300,000
April P360,000

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.
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.

PROBLEM 4
The following are forecasts of sales and purchases for China Grove Company:

Sales Purchases
April P80,000 P30,000
May 90,000 40,000
June 85,000 30,000

All sales are on credit. Records show that 70 percent of the customers pay the month of the sale, 20
percent pay the month after the sale, and the remaining 10 percent pay the second month after the sale.
Purchases are all paid the following month at a 2 percent discount. Cash disbursements for operating
expenses in June were P5,000.
Required: Prepare a schedule of cash receipts and disbursements for June.