THEORIES: 24.Which of the following is NOT an advantage of budgeting?

Basic Concepts A.It forces managers to plan.

1. The concept of “management by exception” refers to management’s B.It provides resource information that can be used to improve decision
consideration of making.
A. only those items that vary materially from expectations. C.It aids in the use of resources and employees by setting a benchmark that
B. only rare events. can be used
C. samples selected at random. for the subsequent evaluation of performance.
D. only significant unfavorable deviations. D.It provides organizational independence.

8. A formal written statement of management’s plans for the future, 4. Which of the following is least likely a reason why a company prepares its
packaged in financial budget?
terms, is a: A.To provide a basis for comparison of actual performance
A.Responsibility report. C.Cost of production report. B.To communicate the company’s plans throughout the entire business
B.Performance report. D.Budget. organization
C.To control income and expenditure in a particular period.
2. Budgets are related to which of the following management functions? D.To make sure the company expands its operations.
A.Planning C.Control
B.Performance evaluation D.all of these 5. Which of the following does not contribute to an effective budgeting?
A.Top management is involved in budgeting.
22.Budgeting supports the planning process by encouraging all of the B.To give each manager a free hand in the preparation of the budget, the
following activities data within the
except: master budget are flexible.
A.Requiring all organizational units to establish their goals for the coming C.The organization is divided into responsibility units.
period. D.There is communication of results.
B.Increasing the motivation of managers and employees by providing agreed-
upon 6. The budgets that are based on a very high levels of performance, like
expectations. expected costs using
C.Improving overall decision making by considering all viewpoints, options, ideal standards,
and cost A.assist in planning the operations of the company
control programs. B.stimulate people to perform better than they ordinarily would
D.Directing and coordinating operations during the period. C.are helpful in evaluating the performance of managers
D.can lead to low levels of performance
3. Which of the following advantages does a budget mostly provide?
A.Coordination is increased. 7. Which of the following statements is incorrect?
B.Planning is emphasized. A.An imposed budget is the same as a participative budget.
C.Communication is continuous. B.Preparation of the budget would be the responsibility of each
D.Comparison of actual versus budgeted data. responsibility unit.
C.Top management’s support is necessary to promote budget participation.
D.The top management should review and approve each responsibility unit’s
budget.
9. The primary role of the budget director and the budgeting department is
to
A.Settle disputes among operating executives during the development of the
annual
operating plan.
B.Develop the annual profit plan by selecting the alternatives to be adopted
form the
suggestions submitted by the various operating segments.
C.Compile the budget and manage the budget process.
D.Justify the budget to the corporate planning committee of the board of
directors.
10.The primary variable affecting active participation and commitment to the
budget and the
control system is
A.Management efforts to achieve the budget rather than optimize results.
B.The rigid adherence to the budget without recognizing changing
conditions.
C.Top management involvement in support of the budget.
D.The opportunity budgeting gives to risk-taker managers for department
growth.
12.A variant of fiscal-year budgeting whereby a twelve-month projections
into the future is
maintained at all times:
A.Forecasting. C.Continuous budgeting.
B.Zero-based budgeting. D.Calendar budgeting.
35.The method of budgeting which adds one month’s budget to the end of
the plan when the
current month’s budget is dropped from the plan refers to
A.Long-term budget C.Incremental budget
B.Operations budget D.Continuous budget
27.A continuous budget
A.is a budget that is revised monthly or quarterly.
B.is a medium term plan that consists of more than 2 years’ projections.
C.is appropriate only for use of a not-for-profit entity.
D.works best for an entity that can reliably forecast events a year or more
into the future.
37.“Incremental budgeting” refers to
A.line-by-line approval of expenditures
B.setting budget allowances based on prior year expenditures
C.requiring top management approval of increases in budgets
D.using incremental revenues and costs in budgeting
49.A budget plan for annual fixed costs that arises from top management
decisions directly
reflecting corporate policy.
A.Flexible budget. C.Discretionary budget.
B.Static budget. D.Program budget.
36.The term “decision package” relates to
A.comprehensive budgeting C.program budgeting
B.zero-based budgeting D.line budgeting
41.The budget approach that is more relevant when the continuance of an
activity or operation
must be justified on the basis of its need or usefulness to the organization.
A.the incremental approach C.the baseline approach
B.the zero-based approach D.both a and b are true
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:
A.Forecasting. C.Continuous budgeting.
B.Zero-based budgeting. D.Program budgeting.
38.Which of the following is a contemporary approach to budgeting? 34.Budgeting expenditures by purpose is called
A.incremental approach C.baseline approach A.program budgeting C.zero-based budgeting
B.zero-based approach D.both a and b are true B.line budgeting D.flexible budgeting

51.Zero-base budgeting requires managers to 28.A static budget is not appropriate in evaluating a manager's effectiveness
A.Justify expenditures that are increases over the prior period’s budgeted if a company has
amount. A.substantial fixed costs.
B.Justify all expenditures, not just increases over last year’s amount. B.substantial variable costs.
C.Maintain a full-year budget intact at all times. C.planned activity levels that match actual activity levels.
D.Maintain a budget with zero increases over the prior period. D.no variable costs.

13.Zero-based budgeting: 45.Flexible budgeting is a reporting system wherein the

A.involves the review of changes made to an organization’s original budget. A.Budget standards may be adjusted at management’s discretion.
B.does not provide a summary of annual projections. B.Planned level of activity is adjusted to the actual level of activity before the
C.involves the review of each cost component from a cost/benefit performance
perspective. report is prepared.
D.emphasizes the relationship of effort to projected annual revenues. C.Reporting dates vary according to the managerial levels of the users.
D.Packages of activities vary from period to period.
18.A systematized approach known as zero-based budgeting:
A.Classifies the budget by the prior year’s activity and estimates the benefits 15.A budget that presents the plan for a range of activity so that the plan
arising from can be adjusted for
each activity. changes in activity levels is referred to as:
B.Commence with either the current level of spending or projected A.Zero-based budgeting.
whichever is lower. B.Continuous budgeting.
C.Presents planned activities for a period of time but does not present a firm C.Flexible budgeting.
commitment. D.Program planning and budgeting system.
D.Divides the activities of individual responsibility centers into a series of
packages that are prioritized 16.A flexible budget is
A.one that can be changed whenever a manager so desires
20.Which of the following statements about Zero-based budgeting is B.adjusted to reflect expected costs at the actual level of activity
incorrect? C.one that uses the formula total costs = cost per unit x units produced
A.All activities in the company are organized into break-up units called D.the same as a continuous budget
packages.
B.All costs have to be justified every budgeting period. 26.A series of budgets for varying levels of activity is a:
C.The process is not time consuming since justification of costs can be done A.Variable cost budget. C.Master budget.
as a routine B.Flexible budget. D.Zero-based budget.
matter.
D.Zero-based budgeting includes variable costs only.
48.If a company wishes to establish a factory overhead budget system in 21.A budget that identifies revenues and costs with an individual controlling
which estimated costs their incurrence is
can be derived directly from estimates of activity levels, it should prepare a A.Master budget C.Product budget
A.flexible budget. C.Discretionary budget. B.Responsibility budget D.None of the above
B.Program budget. D.Manufacturing budget.
25.The difference between an individual's submitted budget projection and
46.The basic difference between a master budget and a flexible budget is his or her bestestimate of the item being projected is an example of
that a A.padding the budget
A.Flexible budget considers only variable costs but a master budget B.adhering to zero-based budgeting assumptions
considers all costs. C.creating budgetary slack
B.Flexible budget allows management latitude in meeting goals whereas a D.being incongruent with participative budgeting
master budget
is based on a fixed standard. 43.Budget slack is a condition in which
C.Master budget is for an entire production facility but a flexible budget is A.Demand is low at various times of the year
applicable to B.Excess machine capacity exists in some areas of the plant
single department only. C.There is an intentional overestimate of expenses or an underestimate of
D.Master budget is based on one specific level of production and a flexible revenues
budget can be D.Managers grant favored employees extra time-off
prepared for any production level within a relevant range
39.The procedure for setting profit objectives in which the determination of
47.Which of the following is a difference between a static budget and a profit objectives is
flexible budgets? subordinated to the planning, and the objectives emerge as the product of
A.A flexible budget includes only variable costs; a static budget includes only the planning itself
fixed costs. is the
B.A flexible budget includes all costs, a static budget includes only fixed A.a priori method C.practical method
costs. B.theoretical method D.a posteriori method
C.A flexible budget gives different allowances for different levels of activity, a
static budget 40.The procedure for setting profit objectives in which management specifies
does not. a given rate of
D.There is no difference between the two. return that it seeks to realize in the long run by means of planning toward
that end is the
17.A system that classifies budget requests by activity and estimates the A.a priori method C.pragmatic method
benefits arising from B.theoretical method D.ad hoc method
each activity:
A.Incremental budgeting system. 50.Budgeting process in which information flows top down and bottom up is
B.Static budgeting system. referred to as:
C.Program planning and budgeting system. A.Continuous budgeting. C.Perpetual budgeting
D.Participative system. B.Participative budgeting D.Joint budgeting
42.Which of the following is not a potential problem with participative 29.In estimating the sales volume for a master budget, which of the
budgeting? following techniques may
A.setting standards that are either too high or too low be used to improve the projections?
B.padding the budget A.Brainstorming.
C.build slack into the budget B.Statistical analysis.
D.all of the above are potential problems C.Estimating from previous sales volume.
D.All of these are useful.
33.The ideal financial planning process would be
A.top-down planning. 30.Using the concept of ‘expected value” in sales forecasting means that the
B.bottom-up planning. sales forecast to be
C.a combination of top-down and bottom-up planning. used is
D.None of the above A.developed using the indicator method
B.the sum of the sales expected by individual managers
44.A common starting point in the budgeting process is C.based on expected selling prices of the products
A.expected future net income. C.to motivate the sales force. D.based on probabilities
B.past performance. D.a clean slate, with no expectations.
31.Several sales forecasts are available from different sources and the
57.Which one of the following is an external factor that would need to be managers have good
considered in forming an ideas about their likelihoods. This situation call for the use of
initial budget proposal? A.the expected value concept C.indicator methods
A.changes in product design B.historical analysis D.a scatter diagram
B.introduction of a new product
C.competitors' actions 53.An overly optimistic sales budget may result in
D.adoption of a new manufacturing process A.increases in selling prices late in the year.
B.insufficient inventories.
14.Operating budgets are C.increased sales during the year.
A.a forecast of expected operating expenses. D.excessive inventories.
B.a forecast of operating expenses and related revenues.
C.a forecast of units of production. 56.Which of the following budgets provides the data for the preparation of
D.concerned with the income-generating activities of a firm. the direct labor cost
budget?
54.What is the proper preparation sequencing of the following budgets? A.Direct materials purchase budget. C.Sales budget.
1. Budgeted Balance Sheet B.Cash budget. D.Production budget.
2. Sales Budget
3. Selling and Administrative Budget 55.The increased use of automation and less use of the work force in
4. Budgeted Income Statement companies has caused a
A.1, 2, 3, 4 C.2, 3, 4, 1 trend towards an increase in
B 2, 3, 1, 4 D.2, 4, 1, 3 A.both variable and fixed costs.
B.fixed costs and a decrease in variable costs. C.A sales budget and a sales forecast are the same thing.
C.variable costs and a decrease in fixed costs. D.The primary purpose of the cash budget is to show the expected cash
D.variable costs and no change in fixed costs. balance at the end
of the budget period.
32.In preparing a cash budget, which of the following is normally the
starting point for projecting PROBLEMS:
cash requirements? Cost estimation formula
A.Fixed assets. C.Accounts receivable.
B.Sales. D.Inventories. 1. Management has prepared a graph showing the total costs of operating
branch warehouses
52.Recognition of the many uncertainties in budgeting is exemplified by throughout the country. The cost line crosses the vertical axis at P400,000.
companies normally The total cost of operating one branch is P650,000. The total cost of
A.forecasting sales operating ten branches is P2,900,000. For purposes of preparing a flexible
B.establishing minimum required cash balances budget based on the number of branch warehouses in operation, what
C.forecasting only fixed costs formula would be used to determine budgeted costs at various levels of
D.omitting expected dividend payments from budgeted disbursements activity?
A. Y = P400,000 + P250,000X C.Y = P650,000 + P400,000X
19.Which of the following statements is True? B. Y = P400,000 + P290,000X D.Y = P650,000 + P250,000X
A.Under zero-based budgeting, a manager is required to start at zero budget
levels each Sales budget
period, as if the programs involved were being initiated for the first time. Purchases budget – merchandising concern
B.The primary purpose of the cash budget is to show the expected cash
balance at the end 2. PTO Company desires an ending inventory of P140,000. It expects sales of
of the budget period. P800,000 and
C.Budget data are generally prepared by top management and distributed has a beginning inventory of P130,000. Cost of sales is 65% of sales.
downward in an Budgeted purchases
organization. are
D.The budget committee is responsible for preparing detailed budget figures A.P 530,000 C.P 810,000
in an B.P 790,000 D.P1,070,000
organization.
3. Calypso Co. has projected sales to be P600,000 in January, P750,000 in
23.Which of the following is a valid statement? February, and P800,000 in March. Calypso wants to have 50% of next
A.Responsibility budget identifies revenue and costs with the individual month’s sales needs on hand at the end of a month. If Calypso has an
responsible for their average gross profit of 40%, what are the February 28
incurrence. purchases?
B.The best way to establish budget figures is to use last year’s actual cost A.P465,000 C.P775,000
and activity data B.P310,000 D.P428,000
as this year’s budget estimates.
4. Blue Company budgeted purchases of P100,000. Cost of sales was
P120,000 and the desired ending inventory was P42,000. The beginning
inventory was
A.P20,000 C.P42,000
B.P32,000 D.P62,000
5. The payment schedule of purchases made on account is: 60% in the time
period of purchase, 30% in the following time period, and 10% in the
subsequent time period. Total credit purchases were P200,000 in May, 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?
A.P200,000 C.P145,000
B.P100,000 D.P215,000
Production budget
There are 300,000 finished units in the inventory on June 30. Each unit of
finished product requires four pounds of direct materials at a cost of P2.50
per pound. There are 800,000 pounds of direct materials in the inventory on
June 30. How many units should be produced for the three-month period
ending September 30?
A.1,260,000 C.1,331,440
B.1,328,000 D.1,424,050
Ending inventory budget
8. If the required direct materials purchases are 8,000 pounds and the
direct materials required for production is three times the direct materials
purchases, and the beginning direct materials are three and a half times the
direct materials purchases, what are the desired ending direct material in
pounds?
A.20,000 C.12,000
B. 4,000 D.32,000

6. Montalban Company’s sales budget shows the following expected sales for Raw materials usage budget
the following year:
Quarter Units 9. Minerva Company sells a single product. Budgeted sales for the year are
First 120,000 anticipated to be
Second 160,000 640,000 units. The estimated beginning and ending finished goods inventory
Third 90,000 are 108,000
Fourth 110,000 and 90,000, respectively. A production of one unit requires the following
Total 480,000 materials:
The inventory at December 31 of the prior year was budgeted at 36,000 Material LL 0.50 lb. @ P0.60
units. The quantity of finished goods inventory at the end of each quarter is Material MM 1.00 lb. @ P1.70
to equal 30% of the next quarter’s budgeted sales of units. Material NN 1.20 lb. @ P1.00
How much should the production budget show for units to be produced What are the respective peso amounts of each material to be used in
during the first production during the
quarter? year?
A. 48,000 C.132,000 Material LL Material MM Material NN
B. 96,000 D.144,000 A. P181,200 P1,026,800 P724,800
B. P181,200 P1,026,800 P746,400
7. Lorie Company plans to sell 400,000 units of finished product in July an C. P186,600 P1,057,400 P746,400
anticipates a growth rate in sales of 5% per month. The desired monthly D. P186,600 P1,057,400 P724,800
ending inventory in units of finished product is 80% of the next month’s
estimated sales.
Raw materials purchases budget materials. The production budgets in units consist of the following:.
May 1,000
10.If there were 30,000 pounds of raw material on hand on January 1, June 1,200
60,000 pounds are desired for inventory at December 31, and 180,000 July 1,300
pounds are required for annual production, how many pounds of raw August 1,600
material should be purchased during the year? Raw material purchases in June would be
A.150,000 pounds C.120,000 pounds A.2,600 pounds C.2,400 pounds
B.240,000 pounds D.210,000 pounds B.1,800 pounds D.2,700 pounds

11.Silver Bowl Company manufactures a single product. It keeps its 14.Sales Company is budgeting sales of 300,000 units of its only product for
inventory of finished goods at 75% the coming month’s budgeted sales. It the coming year. Production of one unit of product requires three pounds of
also keeps its inventory of raw materials at 50% of the coming month’s Material Q and 2 pounds of Material L. Inventory units at the beginning of
budgeted production. Each unit of product requires two pounds of the year are:
materials. The production budget is, in units: May, 1,000; June, 1,200; Actual, Jan. 1 Budgeted, Dec 31
July, 1,300; august, 1,600. Raw material purchases in July would be Finished goods 60,000 50,000
A.1,525 pounds C.2,550 pounds Material Q 80,000 60,000
B.2,900 pounds D.3,050 pounds Material L 88,000 96,000
How many pounds of Material Q is Sales planning to buy during the coming
12.Each unit of finished product uses 6 kilograms of raw materials. The year?
production and inventory budgets for May 2007 are as follows: A.850,000 C.862,000
Beginning Inventory: B.890,000 D.908,000
Finished goods 15,000 units
Raw materials 21,000 kg. 15.Strama Company prepares its budgets on annual basis. The following
Budgeted unit sales 18,000 units beginning and ending inventory unit levels are planned for the fiscal year of
Planned ending inventory June 1, 2006 through May 31, 2007.
Finished goods 11,400 units June 1, 2006 May 31, 2007
Raw materials 24,400 kg. Raw material* 40,000 50,000
During the production process, it is usually found that 10% of production Work-in-process 10,000 10,000
units are scrapped as defective and this loss occurs after the raw materials Finished goods 80,000 50,000
have been placed in process. *Two (2) units of raw material are needed to produce each unit of finished
How many kilograms of raw materials should be purchased in June? product.
A.89,800 C.96,000 If 500,000 finished units were to be manufactured during the 2006-2007
B.98,440 D.99,400 fiscal year by Strama Company, the units of raw material needed to be
purchased would be
13.Violet Company manufactures a single product. It keeps its inventory of A.1,000,000 units C.1,020,000 units
finished goods at twice the coming month’s budgeted sales, inventory of raw B.1,010,000 units D. 990,000 units
materials at 150% of the coming month’s budgeted production
requirements. Each unit of product requires two pounds of
16. Diliman Corporation includes the following quarterly budget for Credit sales
production: 19.Mendrez Company has a collection schedule of 60% during the month of
Quarter Production sales, 15% the following month, and 15% subsequently. The total credit
First 60,000 units sales in the current month of September were P80,000 and total collections
Second 45,000 units in September were P57,000. What were the credit sales in July?
Third 40,000 units A.P90,000 C.P45,000
Fourth 65,000 units B.P30,000 D.P32,000
Each unit of product requires 2.5 kilograms of direct materials. The
company begins each quarter with inventory of direct materials equal to 25 Cash collections
percent of the total quarter’s material requirements. 20.Obligacion Company has P299,000 in accounts receivable on January 1,
What is the budgeted purchases of materials for the second quarter? 2006. Budgeted sales for January are P860,000. Obligacion expects to sell
A.113,750 C. 46,250 20% of its merchandise for cash. Of the remaining sales, 75% are expected
B.109,375 D.112,500 to be collected in the month of sale and the remainder the following month.
The January cash collections from sales are:
Indirect labor costs A.P815,000 C.P471,000
17.Namuco, Inc. uses flexible budgeting for cost control. During the month B.P691,000 D.P987,000
of September, Namuco, Inc. produced 14,500 units of finished goods with
indirect labor costs of P25,375. Its annual master budget reflects an indirect 21.Adel Company has the following sales forecasts for the selected three-
labor costs, a variable cost, of P360,000 based on an annual production of month period in 2007:
200,000 units. In the preparation of performance analysis for the month of Month Sales
September, how much flexible budget should be allowed for indirect labor April P12,000
costs? May 7,000
A.P30,000 C.P25,375 June 8,000
B.P29,167 D.P26,100 Seventy percent of sales are collected in the month of the sale, and the
remainder is collected in the following month.
Cash receipts budget Accounts receivable balance (April 1, 2007) P10,000
Sales Cash balance (April 1, 2007) 5,000
18.Generous Company began its operations on January 1 of the current Minimum cash balance is P5,000. Cash can be borrowed in P1,000
year. Budgeted sales for the first quarter are P240,000, P300,000, and increments from the local bank (assume no interest charges).
P420,000, respectively, for January, February and March. Generous How much cash would be collected in June from sales?
Company expects 20% of its sales cash and the remainder on account. Of A.P 7,700 C.P 8,000
the sales on account, 70% are expected to be collected in the month of sale, B.P 8,500 D.P10,000
25% in the month following the sale, and the remainder in the following
month. 22.The Avelina Company has the following historical pattern on its credit
How much should Generous receive from sales in March? sales.
A.P304,800 C.P388,800 70 percent collected in month of sale
B.294,000 D.P295,200 15 percent collected in the first month after sale
10 percent collected in the second month after sale
 4 percent collected in the third month after sale Accounts receivable balance
2 percent uncollectible 24.As of January 1, 2007, the Liberal Sales Company had an account
The sales on open account have been budgeted for the last six months of receivable of P500,000. The sales for January, February, and March were as
2007 are shown below: follows: P1,200,000, P1,400,000 and P1,500,000, respectively. Of each
July P 60,000 month’s sales, 80% is on account. 60% of account sales is collected in the
August 70,000 month of sale, with remaining 40% collected in the following month.
September 80,000 What is the accounts receivable balance as of March 31, 2007?
October 90,000 A.P720,000 C.P587,200
November 100,000 B.P480,000 D.P600,000
December 85,000
The estimated total cash collections during the fourth calendar quarter from Credit to accounts receivable
sales made on open account during the fourth calendar quarter would be 25.Ironman Company is preparing its cash budget for the month ending
A.P172,500 C.P265,400 November 30. The following information pertains to Ironman’s past
B.P230,000 D.P251,400 collection experience from its credit sales:
Current month’s sales 12%
23.The Le Amore Company had the following budgeted sales for the first half Prior month’s sales 75%
of the current year: Sales two months prior to current month 6%
Cash Sales Credit Sales Sales three months prior to current month 4%
January P70,000 P340,000 Cash discounts (2/30, net/90) 2%
February 50,000 190,000 Doubtful accounts 1%
March 40,000 135,000 Credit sales:
April 35,000 120,000 November – estimated P2,000,000
May 45,000 160,000 October 1,800,000
June 40,000 140,000 September 1,600,000
The company is in the process of preparing a cash budget and must August 1,900,000
determine the expected cash collections by month. To this end, the following How much is the estimated credit to Accounts Receivable as a result of
information has been assembled: collections expected
Collections on sales: 60% in month of sale during November?
30% in month following sale A.P1,730,200 C.P1,762,000
10% in second month following sale B.P1,757,200 D.P1,802,000
The accounts receivable balance on January 1 of the current year was
P70,000, of which P50,000 represents uncollected December sales and Increase in accounts receivable
P20,000 represents uncollected November sales. 26.Lazaro Company will open a new store on January 1. Based on
The total cash collected by Le Amore Company during the month of January experience from its other retail outlets, Lazaro is making the following sales
would be: projections:
A.P410,000 C.P344,000 Cash Sales Credit Sales
B.P254,000 D.P331,500 January P600,000 P400,000
February 300,000 500,000
March 400,000 600,000
April 400,000 800,000
Lazaro estimates that 70% of the credit sales will be collected in the month
following the month of the sale, with the balance collected in the second
month following the sale. Based on these data, the balance in accounts
receivable on January 31 will be increased by
A.400,000 C.P120,000
B.P280,000 D.P580,000
Cash disbursements
27.Cascades Company, a merchandising firm, is preparing its master budget
and has gathered the following data to help budget cash disbursements:
Budgeted data:
Cost of goods sold P1,680,000
Desired decrease in inventories 70,000
Desired decrease in Accounts Payable 150,000
All of the accounts payables are for inventory purchases and all inventory
items are budget period?
A.P1,460,000 C.P1,900,000
B.P1,600,000 D.P1,760,000
28.Albatross Company started its commercial operations on September 30 of
the current year. Projected manufacturing costs for the first three months of
operations are P1,568,000, P1,952,000, and P2,176,000, respectively.
Depreciation, insurance, and property taxes represent P288,000 of the
estimated manufacturing costs. Insurance was paid on September 30, and
property taxes will be paid in July next year. Seventy-five percent of the
remainder of the manufacturing costs are expected to be paid in the month
in which they are incurred, with the balance to be paid in the following
month. The cash payments for manufacturing costs in the month of
November are:
A.P1,568,000 C.P1,664,000
B.P1,952,000 D.P1,856,000
Ending cash balance
29.Albania Company expects its June sales to be P300,000, which is 25%
higher than its May sales. Purchases were P200,000 in May and are
expected to be P240,000 in June. All sales are on credit and are collected as
follows: 80% in the month of the sale and 20% in the following month. All
payments in the month of sales are given 2% discount. Sixty percent of
purchases are paid in the month of purchase to take advantage of purchase
term of 1/10, n/40. The remaining amount is paid in the following month.
The beginning cash balance on June 1 is P20,000. The ending cash balance
on June 30 would be:
A.P64,160 C.P80,640
B.P73,000 D.P85,440
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:
Sales:
a. Each month’s sales are billed on the last day of the month.
b. Customers are allowed a 3 percent discount if payment is made within 10
days after the billing date. Receivables are booked gross.
c. Sixty percent of the billings are collected within the discount period,
twentyfive percent are collected by the end of the month, nine percent are
collected by the end of the second month, and six percent are considered
entirely uncollectible.
Purchases:
1. Fifty four percent of all purchases and selling, general, and administrative
expenses
are paid in the month purchased and the remainder in the following month.
2. Each month’s units of ending inventory is equal to one hundred thirty
percent of the
next month’s units of sales.
3. The cost of each unit of inventory is P200.
4. Selling, general, and administrative expenses, of which P20,000 is
depreciation, are
equal to fifteen percent of the current month’s sales. In order to fully avail of the 2% discount, Rajah pays all the purchases by
Actual and projected sales are as follows: the tenth of the month following the month of purchase. Sales for the month
UNITS PESOS of May are expected to be P6,600,000 and the amount of purchases are
November 11,800 P3,540,000 P6,000,000. Operating expenses to be paid during the month of May will be
December 12,100 3,630,000 P1,440,000 and the cash balance by May 1 is P2,200,000. The Atlanta
January 11,900 3,570,000 Corporation has forecast the following sales for the first seven months of the
February 11,400 3,420,000 year:
March 12,000 3,600,000 January P120,000 May P120,000
April 12,200 3,660,000 February 160,000 June 200,000
March 180,000 July 220,000
30.The respective amounts of budgeted purchases for the months of April 240,000
January and February are: Monthly material purchases are set equal to 20 percent of forecasted sales
A.P2,418,000 and P2,360,000 C.P2,250,000 and P2,436,000 for the next month. Of the total material costs, 40 percent are paid in the
B.P2,380,000 and P2,280,000 D.P3,570,000 and P3,420,000 month of purchase and 60 percent in the following month. Labor costs will
31.The budgeted cash disbursements for the month of February are: run P60,000 per month, and fixed overhead is P30,000 per month. Interest
A.P2,929,000 C.P2,949,000 payments on the debt will be P45,000 for both March and June. Finally,
B.P2,873,790 D.P2,853,790 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.
32.The amount of cash collected from sales during the month of January is:
A.P3,338,760 C.P3,404,100 34.How much will be paid in the month of January for the purchase of
B.P3,551,160 D.P3,556,560 materials?
A.P 27,200 C.P137,856
33.The number of units to be purchased during the month of March is: B.P117,200 D.P 33,600
A.15,860 C.12,000
B.12,260 D.15,600 35.How much does Atlanta plan to disburse in the month of June?
A.P 41,600 C.P207,200
Rajah Enterprises is a growing retailer of home care products. During the B.P100,000 D.P117,200
first four months of the following year, it forecasts the following sales and
purchases: Question Nos. 36 through 38 are based on the following:
Sales Purchases Super Sales’ actual sales and purchases for April and May are shown here
January P7,200,000 P4,200,000 along with forecasted sales and purchases for June through September.
February 6,600,000 4,800,000 Sales Purchases
March 6,000,000 3,600,000 April (Actual) P390,000 P200,000
April 7,800,000 5,400,000 May (Actual) 420,000 220,000
Rajah collects 70% of sales is collection during the month of sale, 20% the June (forecast) 390,000 210,000
following month and 9% in the second month. 1% of sales are deemed July (forecast) 350,000 240,000
uncollectible. August (forecast) 420,000 320,000
September (forecast) 410,000 230,000
The company makes 10 percent of its sales for cash and 90 percent on
credit. Of the credit sales, 30 percent are collected in the month after the
sale and 70 percent are collected two months after. Super Sales pays for 45
percent of its purchases in the month after purchase and 55 percent two
months after. Labor expense equals 15 percent of the current month's sales.
General overhead expense equals P10,000 per month. Interest payments of
P35,000 are due in June and September. A cash dividend of P25,000 is
scheduled to be paid in 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. 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 securities are sold before borrowing funds
in case of a cash shortfall (less than P20,000).
36.During the month of June, Super Sales expects to receive cash from sales
amounting to:
A.P606,000 C.P398,100
B.P408,900 D.P359,100
37.The cumulative amount of marketable securities purchased as of July 31
amounts to:
A.P126,000 C.P143,300
B.132,500 D.P 0
38.The amount of loan to be obtained to maintain a balance of P50,000 cash
as of September 30
will be:
A.P109.4 C.P 9.4
B.P 59.4 D.P 0.0
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 stockholder, manages the
inventory and finances of the company. She
estimates sales for the following months to be:
January P263,500 (1,700,000 fasteners)
February P186,000 (1,200,000 fasteners)
March P217,000 (1,400,000 fasteners)
April P310,000 (2,000,000 fasteners)
May P387,500 (2,500,000 fasteners)
Last year Ingo Corporation's sales were P175,000 in November and
P232,500 in December (1,500,000 fasteners). 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, a monthly and
quarterly pro forma income statement, a pro forma quarterly balance sheet,
and all necessary supporting schedules for the first quarter. Past history
shows that Ingo Corporation collects 50 percent of its accounts receivable in
the normal 30-day credit period (the month after the sale) and the other 50
percent in 60 days (two months after the sale). It pays for its materials 30
days after receipt. In general, Ms. Tee likes to keep a two-month supply of
inventory in anticipation of sales. Inventory at the beginning of December
was 2,600,000 units. (This was not equal to her desired two-month supply.)
The major cost of production is the purchase of raw materials in the form of
steel rods, which are cut, threaded, and finished. Last year raw material
costs were P52 per 1,000 fasteners, but Ms. Tee has just been notified that
material 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. Overhead is allocated at P10 per thousand units, and
selling and administrative expense is 20 percent of sales. Labor expense and
overhead are direct cash outflows paid in the month incurred, while interest
and taxes are paid quarterly. The corporation usually maintains a minimum
cash balance of P25,000, and it puts its excess cash into marketable
securities. The average tax rate is 40 percent, and the company usually pays
out 50 percent of net income in dividends to stockholders. Marketable
securities are sold before funds are borrowed when a cash shortage is faced.
Ignore the interest on any short-term borrowings. Interest on the long-term
debt is paid in March, as are taxes and dividends. As of year-end, the Ingo
Corporation balance sheet was as follows:
Ingo Corporation
Balance Sheet
December 31, 2006
ASSETS
Current assets: 44.The total cash and marketable securities as of January 31 will be:
Cash P 30,000 A.P45,450 C.P91,800
Accounts receivable 320,000 B.P25,000 D.P54,450
Inventory 237,800
Total current assets 587,800 45.The expected net income during the first quarter of the coming year is:
Plant and equipment, net of accumulated depreciation of P200,000 800,000 A.P 91,080 C.P 96,840
Total Assets P1,387,800 B.P161,400 D.P151,800
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable P 93,600 Question Nos. 46 through 48 are based on the Russon Corporation, a
Long-term debt, 8% 400,000 retailer whose sales are all made on credit. Sales are billed twice monthly,
Common stock 504,200 on the 10th of the month for the last half of the prior month’s sales, and on
Retained earnings 390,000 the 20th of the month for the first half of the current month’s sales. The
Total Liabilities and Stockholders’ Equity P1,387,800 terms of all sales are 2/10, net 30. Based upon past experience, the
collection of accounts receivable is as follows:
39.The budgeted production respective to each month of the first quarter of Within the discount period 80%
the coming year are: On the 30th day 18%
A.1,400,000; 2,000,000; 2,500,000 C.2,500,000; 2,000,000; 1,400,000 Uncollectible 2%
B.1,400,000; 2,500,000; 2,000,000 D.2,000,000; 1,400,000; 2,500,000 Russon’s average markup on its products is 20% of the sales price. All sales
and purchases occur uniformly throughout the month. The sales value of
40.The amount of accounts payable paid in March for the purchase of shipments for May and the forecasts for the next four months follow:
materials is: May (actual) P500,000
A.P150,000 C.P104,000 June 600,000
B.P120,000 D.P130,000 July 700,000
August 700,000
41.The expected cash collections on accounts receivable in the month of September 400,000
February are: Russon purchases merchandise for resale to meet the current month’s sales
A.P224,750 C.P 93,000 demand and to maintain a desired monthly ending inventory of 25% of the
B.P248,000 D.P186,000 next month’s sales. All purchases are on credit with terms of net/30.
Russon pays for 50% of a month’s purchases in the month of purchase and
42.The amount of accounts receivable outstanding as of March 31, 2007 is: 50% in the month following the purchase.
A.P217,000 C.P310,000
B.P224,750 D.P108,500 46.How much cash can Russon plan to collect in September from sales
made in August?
43.The cost of goods sold for the first quarter of the coming year amounts to: A.P337,400 C.P400,400
A.P363,800 C.P426,400 B.P343,000 D.P280,000
B.P453,600 D.P373,400
47.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

48.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