EXERCISES 4 BUDGETING

Nos 1 to 3 are based on the following information:

The January 31, 2021 statement of financial position of ABC Company follows:
Cash P 8,000
Accounts receivable (net of allowance for uncollectible accounts of P2,200) 38,000
Inventory 16,000
Property, plant & equipment (net of accumulated depreciation of P60,0000) 40,000
P102,000
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Accounts payable P 82,500
Ordinary shares 50,000
Retained earnings (deficit) (30,500)

P 102,000
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Additional information:
 Sales are budgeted as follows:
February P110,000
March 120,000
 Collections are expected to be 60% in the month of sale, 38% the next month, and 2%
uncollectible.
 The gross margin is 25% of sales. Purchases each month are 75% of the next month’s projected
sales. The purchases are paid in full the following month.
 Other expenses for each month, paid in cash, are expected to be P16,500. Depreciation each
month is P5,000.

1. What are the budgeted cash collections for February 2021?

a. P63,800 b. P66,000 c. P101,800 d. P104,000

2. What is the pro-forma income (loss) before income taxes for February 2021?
a. P(1,500) b. P(3,700) c. P3,800 d. P6,000

3. What is the projected balance in accounts payable on February 2021?

a. P82,500 P86,250 c. P90,000 d. P106,500

Nos 4 to 7 are based on the following information:

AB Company budget sales at P2,000,000 and expects a net income before tax of 10% of the sales.
Expenses are estimated as follows:
Selling 15% of sales
Administrative 9% of sales
Finance 1% of sales
Labor is expected to be 40% of the total manufacturing cost. Factory overhead is applied at 75% oof
direct labor cost,
Inventories are to be as follows:
January 1 December 31
Materials P 250,000 P 300,000
Work in process 200,000 320,000
Finished goods 350,000 400,000

4. Cost of goods sold will be

a. P500,000 b. P700,000 c. P1,300,000 d. P2,000,000

5. Total manufacturing cost will be

a. P741,000 b. P882,000 c. PP1,029,000 d. P1,470,000
6. Factory overhead will amount to
a. P441,000 b. P491,000 c. P588,000 d. P1,029,000

7. Materials purchases will be

a. P250,000 b. P300,000 c. P491,000 d. P741,000

8. AB Co. is budgeting sales of 53,000 units of product C for October 2022. The manufacture of one
unit of C requires four kilos of chemical Z. During October 2022, AB plans to reduce the
inventory of Z by 50,000 kilos and increase the finished goods inventory of C by 6,000 units.
There is no C work in process inventory.
How many kilos of Z is AB budgeting to purchase in October 2014?
a. 138,000 b. 162,000 c. 186,000 d. 238,000

Nos. 9 & 10 are based on the following information:

Operational budgets are used by a retail company for planning and controlling its business
activities. Data regarding the company’s monthly sales for the last 6 months of the year and its
projected collection patterns are shown below. The cost of merchandise averages 40% of its
selling price. The company’s policy is to maintain an inventory equal to 25% of the next month’s
forecasted sales. The inventory balance at cost is P80,000 as of June 30.
Forecasted Sales:
July P 775,000
August 750,000
September 825,000
October 800,000
November 850,000
December 900,000
Types of Sales Cash sales 20%, Credit sales 80%
Collection Pattern for Credit Sales: In the month of sale 40%, in the first month following the
sale 57%, Uncollectible 3%
9. The budgeted cost of the company’s purchases for the month of August would be
a. P302,500 b. P305,000 c. P307,500 d. P318,750

10. The company’s total cash receipts from sales and collections on account that would be
budgeted for the month of September would be
a. P757,500 b. P771,000 c. P793,800 d. P856,500

11. Rolling Wheels purchases bicycle components in the month prior to assembling them into
bicycles. Assembly is scheduled one month prior to budgeted sales. Rolling pays 75% of
component costs in the month of purchase and 25% of the costs in the following month.
Component cost included in budgeted cost of sales are:
April P5,000 May P6,000 June P 7,000 July P 8,000 August P 8,000
What is Rolling’s budgeted cash payment for components in May?
a. P5,750 b. P6,750 c. P7,750 d. $8,000

12. A 2014 cash budget is being prepared for the purchase of Tee, a merchandise item.
Budgeted data are
Cost of goods sold for 2022 P300,000
Accounts payable Jan. 1, 2022 20,000
Inventory, Jan. 1, 2022 30,000
Dec. 31, 2022 42,000
Purchases will be made in twelve equal monthly amounts and paid for in the following month.
What is the 2022 budgeted cash payment for purchases of Tee?
a. P295,000 b. P300,000 c. P306,000 d. P312,000