College of Accounting Education

3F, Business & Engineering Building

Matina, Davao City
Phone No.: (082)300-5456 Local 137

MAS 1: SHORT-TERM BUDGETING, FORECASTING AND CONTROL Jade D. Solaña, CPA, MBA
Management Advisory Services August 24, 2021

EXERCISES

1. The beginning cash balance is P20,000. Sales are forecasted at P800,000 of which 80% will be on credit.
70% of credit sales are expected to be collected in the year of sale. Cash expenditures for the year are
forecasted at P500,000. Accounts receivable from previous accounting periods totaling P12,000 will
be collected in the current year. The company is required to make a P20,000 loan payment and an
annual interest payment on the last day of the year. The loan balance as of the beginning of the year
is P120,000, and the annual interest rate is 10%.

Instructions
How much will be reported as 'cash' on the budgeted balance sheet?

Change p700,000 to p800,000

2. Roswell Company has budgeted sales revenue as follows for the next 4 months:
February P150,000
March 120,000
April 105,000
May 165,000
Past experience indicates that 80% of sales each month are on credit and that collection of credit sales
occurs as follows: 60% in the month of sale, 35% in the month following the sale, and 3% in the second
month following the sale. The other 2% is uncollectible.

Instructions
Prepare a schedule which shows expected cash receipts from sales for the month of May.

COMPETENCY APPRAISAL | Management Advisory Services

 College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City
Phone No.: (082)300-5456 Local 137

3. In September 2008, the management of Vinson Company assembles the following data in preparation
of budgeted merchandise purchases for the months of October and November.
1. Expected Sales
October P1,500,000
November 2,100,000
December 2,700,000
2. Cost of goods sold is expected to be 68% of sales.
3. Desired ending merchandise inventory is 25% of the next month's cost of goods sold.
4. The beginning inventory at October 1 will be the desired amount.

Instructions
Compute the budgeted merchandise purchases for October and November. Use a columnar format with
separate columns for each month.

4. The City National Bank has asked Mackey, Inc. for a budgeted balance sheet for the year ended
December 31, 2008. The following information is available:

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COMPETENCY APPRAISAL | Management Advisory Services
 College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City
Phone No.: (082)300-5456 Local 137

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I. The cash budget shows an expected cash balance of P75,000 at December 31, 2008.
II. The 2008 sales budget shows total annual sales of P900,000. All sales are made on account and
accounts receivable at December 31, 2008 are expected to be 10% of annual sales.
III. The merchandise purchases budget shows budgeted cost of goods sold for 2008 of P600,000
and ending merchandise inventory of P105,000. 20% of the ending inventory is expected to
have not yet been paid at December 31, 2008.
IV. The December 31, 2007 balance sheet includes the following balances: Equipment P294,000,
Accumulated Depreciation P120,000, Common Stock P270,000, and Retained Earnings P48,000.
V. The budgeted income statement for 2008 includes the following: depreciation on equipment
P15,000, federal income taxes P24,000, and net income P66,000. The income taxes will not be
paid until 2009.
VI. In 2008, management does not expect to purchase additional equipment or to declare any
dividends. It does expect to pay all operating expenses, other than depreciation, in cash.

Instructions
Prepare an unclassified budgeted balance sheet at December 31, 2008.

5. Weasel Company has the following sales projections for 20X3:

January P200,000
February 210,000
March 225,000
April 230,000
May 245,000
June 240,000

Weasel collects 40% of its sales in the month of sale, 45% in the month following the sale and 13% in
the second month following the sale. Records show that sales were P225,000 in November and
P208,000 in December 20X2.
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COMPETENCY APPRAISAL | Management Advisory Services
 College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City
Phone No.: (082)300-5456 Local 137

a. Prepare a schedule of cash receipts for the first three months of 20X3.

b. What would be the accounts receivable (net of bad debts) balance on March 31, 20X3?

6. Bismarck has the following sales budget:

March P300,000
April P312,000
May P320,000
June P348,000

Cost of sales is 55% of sales. Bismarck keeps an inventory equal to one-fourth the coming month's
budgeted sales requirements. It pays for purchases 40% in the month of purchase and 60% in the
month after purchase. Accounts Payable is P94,800 on March 1.

a. Prepare a monthly purchasing schedule for March through May.

b. Prepare a monthly cash payment schedule for March through May.
c. Compute the accounts payable balance as of May 31.

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COMPETENCY APPRAISAL | Management Advisory Services
 College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City
Phone No.: (082)300-5456 Local 137

7. Acme Inc. estimates its peso sales for the coming months to be as follows.

June P340,000
July 360,000
August 300,000
September 260,000
October 240,000
November 200,000

Acme has an average gross margin of 40% of sales and maintains inventory at 75% of budgeted sales
needs for the next month. Acme began June with P150,000 in inventory.

a. Prepare a monthly purchasing schedule (in P) for as many months as is possible.

Bay City estimates production overhead costs equal to P200,000 + P4X + P7Y, where X is the number of
direct labor hours used and Y is the number of machine hours used. Bay City budgeted 20,000 direct

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COMPETENCY APPRAISAL | Management Advisory Services
 College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City
Phone No.: (082)300-5456 Local 137

labor hours and 50,000 machine hours for 20X2. Bay City produced 30,000 units in 20X2, each requiring
1 direct labor hour and 2.5 machine hours. Actual production costs were P890,000.

a. Calculate the flexible budget allowance for production overhead costs for 20X2.
b. Find the amount and direction of the budget variance for 20X2 for production overhead.

8. Dailey Company has prepared the following monthly flexible manufacturing overhead budget for its
Mixing Department:
DAILEY COMPANY
Monthly Flexible Manufacturing Overhead Budget
Mixing Department
Activity level
Direct labor hours 3,000 4,000
Variable costs
Indirect materials P 1,500 P 2,000
Indirect labor 15,000 20,000
Factory supplies 4,500 6,000
Total variable 21,000 28,000
Fixed costs
Depreciation 20,000 20,000
Supervision 10,000 10,000
Property taxes 15,000 15,000
Total fixed 45,000 45,000
Total costs P66,000 P73,000 Instructions
Prepare a flexible budget at the 5,000 direct labor hours of activity.

10. Fagan Company uses a flexible budget for manufacturing overhead based on machine hours. Variable
manufacturing overhead costs per machine hour are as follows:
Indirect labor P5.00
Indirect materials 2.50
Maintenance .50
Utilities .30

Fixed overhead costs per month are:

Supervision P600
Insurance 200
Property taxes 300
Depreciation 900

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COMPETENCY APPRAISAL | Management Advisory Services
 College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City
Phone No.: (082)300-5456 Local 137

The company believes it will normally operate in a range of 2,000 to 4,000 machine hours per month.

Instructions
Prepare a flexible manufacturing overhead budget for the expected range of activity, using increments
of 1,000 machine hours.

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