Let’s Analyze

Activity 1. Now, it’s your turn to apply your skill in preparing the components of the

master budget.

Problem 1 (adapted)

Lydia Company manufactures a single product. It keeps its inventory of finished goods

at twice the coming month’s budgeted sales and inventory of raw materials at 150%

of the coming month’s budgeted production. Each unit of product requires five pounds

of materials, which cost P3 per pound. The sales budget is, in units: May, 10,000;

June, 12,400; July, 12,600; August, 13,200.

Required:

1. Compute the budgeted production for June.

2. Compute the budgeted production for July.

3. Compute budgeted material purchases for June in pounds and pesos.

1) 12,800

2) 13,800

3) 14,300 and P42,900

Step-by-step explanation
1)

Budgeted sales--------------------------------------------------12,400

Add; Desired ending finished goods

(12,600 x 2)-------------------------------------------------------25,200

Less; Beginning finished goods

(12,400 x 2)-------------------------------------------------------(24,800)

Budgeted production-------------------------------------------12,800

2)

Budgeted sales--------------------------------------------------12,600

Add; Desired ending finished goods

(13,200 x 2)-------------------------------------------------------26,400

Less; Beginning finished goods

(12,600 x 2)-------------------------------------------------------(25,200)

Budgeted production-------------------------------------------13,800

3)

Budgeted production-------------------------------------------12,800
Add; Desired ending raw materials

(13,800 x 150%)-------------------------------------------------20,700

Less; Beginning raw materials

(12,800 x 150%)------------------------------------------------(19,200)

Budgeted purchases in pounds-----------------------------14,300

Budgeted purchases in pesos = 14,300 x P3 = P42,900

Problem 2 (adapted)
Conchita Company has the following information:
Month Budgeted Sales
March P 50,000
April 53,000
May 51,000
June 54,500
July 52,500
In addition, the gross profit rate is 40% and the desired inventory level is 30% of next
month’s cost of sales.
Required: Prepare a purchases budget for April and May
Purchase Budget

April - 31,440

May - 31,230

Problem 3 (adapted)
Ramon Manufacturing has a cash balance of P8,000 on August 1 of the current year.
The company’s controller forecast the following cash receipts and cash disbursements
for the upcoming two months of activity.
Receipts Payments
August P 45,000 P 57,000
September 66,000 56,000
Management desires to maintain a minimum cash balance of P8,000 at all times. If
necessary, additional financing can be obtained in P1,000 multiples at a 12% interest
rate. All borrowings are made at the beginning of the month; debt retirement, on the
other hand, occurs at the end of the month. Interest is paid at the time of repaying loan
principal and is computed on the portion of debt repaid.
Required:
1. Determine the ending cash balance in August both before and after any
necessary financing or debt retirement.
2. Repeat part “1” for September.
1) August

Cash Balance Before Debt = -4000

Cash Balance After Debt = 8000

2) September

Cash Balance Before Debt = 18000

Cash Balance After Debt = 8000

Step-by-step explanation

Amount of Repayment in September

Cash Balance After Repayment = Cash Balance Before Repayment - Principal Payment - Interest Payment

Since the Firm wants to maintain minimum cash Balance at $8000 so cash balance after repayment will
be 8000

and Interest is Paid only on repaid portion so assume principal repayment is x

so Interest Payment will be x * 12% * 2/12 ( Interest for 2 Months august and September)

Interest Payment = 0.02x

Cash Balance After Repayment = Cash Balance Before Repayment - Principal Payment - Interest Payment

8000 = 18000 - x - 0.02x

1.02x = 18000-8000

x = 10000/1.02

x = 9803.92

Problem 4 (adapted)
Dante Manufacturing has a cash balance of P8,000 on August 1 of the current year.
The company’s controller forecast the following cash receipts and cash disbursements
for the upcoming two months of activity.
Purchases Sales
January P 142,000 P 172,000
February 148,000 166,000
March 136,000 165,000
April 154,000 178,000
May 160,000 166,000
Customers pay 60% of their balances in the month of sale, 30% in the month following
sale, and 10% in the second month following sale. The company pays all invoices in
the month following purchase and takes advantage of a 3% discount on all amounts
due. Cash payments for operating expenses in May will be P119,500; Crispin’s cash
balance on May 1 was P127,800.
Required: Determine the following:
1. Expected cash collections during May.
2. Expected cash disbursements during May.
3. Expected cash balance on May 31.

Ans 1) Expected Cash Collection during May = 169500

Cash Collection for May: 1,66,000 * 60% = 99600

Cash Collection of April: 1,78,000* 30% = 53400

Cash Collection of March: 1,65,000* 10% = 16500

Ans 2) Expected Cash Disbursement During May = 268880

Payment for Purchase made in April = 154000*(100%-3%)= 149380

Payment for operating expenses in April = 119500

Ans 3) Closing Balance as on 31st May = 28420 (127800+169500-268880)

Opening Balance = 127800

Add: Cash Collection during May = 169500

Less Cash Disbursement during may= 268880

Problem 5 (adapted)
Fernando Company developed the following data for the month of August:
1. August 1 cash balance P123,000.
2. Cash sales in August P800,000.
3. Credit sales for August are P300,000; for July P400,000; and for June
P400,000. 70% of credit sales are collected in the month of sale, 15% in the
following month, and 10% in the second month following the sale.
4. Purchases for July were P500,000 and for August are P400,000. One-fourth of
purchases are paid in the month of purchase and the remaining three-quarters
in the following month.
5. August salaries are P314,000, utilities are P32,200, and depreciation on the
building and equipment is P100,000.
Required:
1. Anticipated cash receipts from accounts receivable in August.
2. Anticipated total cash available from all sources in August.
3. August cash payments for purchases made in July and August.
4. Anticipated cash balance on August 31.

1) Cash receipts from account receivable = P310,000

2) Total cash available = P1,233,000

3) Cash payment for purchases = P475,000

4) Cash balance on August 31 = P411,800

Step-by-step explanation
1) Cash receipts from account receivable :-

= (300,000 x 70%) + (400,000 x 15%) + (400,000 x 10%)

= 210,000 + 60,000 + 40,000

= 310,000
2) Total cash available = Cash receipts from AR + Cash sales + opening cash balance

= 310,000 + 800,000 + 123,000

= 1,233,000

3) Cash payment for purchases

= (500,000 x 3/4) + (400,000 x 1/4)

= 375,000 + 100,000

= 475,000

4) Cash balance on August 31 = Total cash available - Payment for purchase - Salaries paid - utilities paid

= 1,233,000 - 475,000 - 314,000 - 32,200

= 411,800