PROFIT PLANNING AND BUDGETING

1. Kings Company has budgeted sales at P100,000 and expect a profit of 10% of the sales. Expenses are
estimated as follows: selling = 15% of sales; administrative = 10% of sales. Labor is expected to be
40% of the total manufacturing costs. Factory overhead is to be applied at 75% of direct labor costs.
Inventories are to be as follows:

January 1 December 31

Materials P10,000 P5,000

Work-in-process 3,000 8,000
Finished goods 7,000 12,000

Required: Determine the following:

a. Cost of goods sold

b. Total manufacturing costs
c. Factory overhead
d. Materials purchases

2. Past collections experienced by Chronicles, Inc. Indicate 60% of the net sales billed in the month are
collected during the month of sales, 30% are collected in the following month, and 10% are
collected in the second following month. A record of monthly net sales of previous months is as
follows:

November 2018 P450,000

December 2018 460,000
January 2019 480,000
February 2019 420,000
March 2019 500,000
April 2019 550,000
May 2019 600,000
June 2019 700,000

On January 1, 2019, the accounts receivable balance showed P229,000.

Required:

Determine collections on accounts receivable during:

a. January 2019
b. March 2019
c. May 2019

Determine accounts receivable balance at the end of:

a. February 2019
b. April 2019
c. June 2019
3. The sales manager of Ezra merchandising has budgeted the following sales for the 4 th quarter of
2019:

October P123,500
November 156,000
December 208,000

Other budget estimates are:

- All merchandises are to sell at its invoice cost plus 30% mark-up.
- Beginning of inventories of each month are budgeted at 40% of that particular month’s projected cost
of goods sold.

Required:

a. Determine the projected merchandise purchases for the month of October.

b. Determine the projected merchandise purchases for the month of November.

4. Nehemiah Company has been accumulating operating data in order to prepare an annual profit
plan. Details regarding sales for the first 6 months of the coming year are as follows:

Estimated monthly sales Type of monthly sales Collection pattern for credit sales
January P 600,000 Cash sales 20% Month of sale 30%
February 650,000 Credit sales 80% One month following sale 40%
March 700,000 Second month following sale 25%
April 625,000
May 720,000
June 800,000

Nehemiah’s cost of goods sold averages 40% of the sales value. Company’s objective is to maintain a
target inventory equal to 30% of the next month’s sales in units. Purchases of merchandise for resale are
paid for in the month following sale. The variable operating expenses (other than cost of goods sold) for
Nehemiah are 10% of sales and are paid for in the month following the sale. The annual fixed operating
expenses are presented below. All of these are incurred uniformly throughout the year and paid
monthly except for insurance and property taxes. Insurance is paid quarterly in January, April, July and
October. Property taxes are paid twice a year in April and October.

Advertising P720,000
Depreciation 420,000
Insurance 180,000
Property taxes 240,000
Salaries 1,080,000
Required:

a. How much is the amount of cash collected in March from the sales made during March?
b. How much is the total cash receipts for the month of April?
c. How much is the purchase of merchandise the company will need to make during February?
d. How much is the cost of goods sold projected for the month of February?
e. How much is the total cash disbursement for operating expenses (excluding cost of goods sold)
during April?