FINANCIAL

PLANNING AND
BUDGETING
MASTER BUDGET
 FINMAN.COM

FINANCIAL Δ Analyzing the investment and financing

alternatives available to a firm
PLANNING Δ Forecasting the future consequences of the
alternatives
Δ Deciding which alternatives to undertake
Δ Measuring subsequent performance against
established goal
 SOURCES OF FINANCE
◘ Long-Term Sources of Finance - Share Capital or Equity Shares, Preference Capital or Preference Shares, Retained
Earnings or Internal Accruals, Debenture / Bonds, Term Loans from Financial Institutes, Government, and Commercial Banks, Venture Funding, Asset
Securitization, International Financing by way of Euro Issue, Foreign Currency Loans

◘ Medium Term Sources of Finance - Preference Capital or Preference Shares, Debenture / Bonds, Medium
Term Loans (from Financial Institutes, Government, and Commercial Banks), Lease Finance, Hire Purchase Finance

◘ Short Term Sources of Finance - Trade Credit, Short Term Loans like Working Capital Loans from Commercial
Banks, Fixed Deposits for a period of 1 year or less, Advances received from customers, Creditors, Payables, Factoring Services, Bill
Discounting etc.

◘ Owned Capital - Equity, Preference, Retained Earnings, Convertible Debentures, Venture Fund or Private Equity
◘ Borrowed Capital - Financial institutions, Commercial banks or, The general public in case of debentures
◘ Internal Sources - Retained profits, Reduction or controlling of working capital, Sale of assets etc.
◘ External Sources
01
INPUTS
• Current financial statements
• Assumption about future conditions

02
Financial
Financial
Planning
Planning Process
Process Planning
Planning
Model
Model

03
• OUTPUTS
Project financial statements (proformas)
•• Projected financial
Operational financial statements (proformas)
budgets
•• Operational
Scenario and financial budgets
Analysis
• Scenario Analysis
 Δ Develop a sales forecast
Δ Develop a production schedule to
FINANCIAL calculate production costs and
costs of good sold
PLANNING Δ Estimate other expenses and
revenues
PROCESS Δ Complete the pro forma financial
statements and budgets
 BUDGET COMMITTEE
FINMAN.COM
⌂ Formulate and decide on general policies
relating to the firm’s budgetary system
⌂ Request, review, and revise (if necessary)
individual budget estimates from the
different segments of the organization
⌂ Approve budgets and subsequent
revisions therein
⌂ Receive, evaluate, and analyze budget
reports
⌂ Recommend necessary actions to
improve operational efficiency and
effectiveness
.
 FINANCIAL PLANNING
TERMS
⌂ Budget
Three Ways to Construct Budget:
1. Top-down mandated approach
2. Participative (bottom-up)
3. Blended
⌂ Master Budget
1. Operating - IS
2. Financial – CB, BS, Capital outlay
▪ Budget Report
▪ Continuous (Rolling) Budget
▪ Fixed (Static) Budget
▪ Flexible (Variable, Dynamic) Budget FINANCIAL
▪ Zero-based Budgeting (ZBB) PLANNING
▪ Life-cycle Budget
▪ Activity-based Budgeting TERMS
▪ Kaizen Budgeting
 BUDGETING PROCESS

Sales Budget

O
P
Production Budget E
Ending – Inventory
R
Purchases Budget Budget
A
T
I
N
Cost-of-Goods-Sold Budget
G

B
Operating Expenses Budget U
D
G
E
Budgeted Statement of Income T

Budgeted Cash Capital

Balance Sheet Budgets Budgets

FINANCIAL BUDGET
SALES BUDGET
COLLECTIONS BUDGET
PURCHASES BUDGET
PRODUCTION - DM BUDGET
PRODUCTION – DL BUDGET
PRODUCTION - OH BUDGET
OPEX BUDGET
DISBURSEMENT BUDGET
CASH BUDGET
BUDGETED INCOME STATEMENT
BUDGETED BALANCE SHEET
PROBLEM
SOLVING
BRB’s Company desires an
ending inventory of Php
120,000. It expects a sales
of Php 240,000 and has a
beginning inventory of Php
80,000. Cost of sales is
60% of sales. Budgeted
purchases are?
XYZ Inc budgeted purchases
of Php 200,000. Cost of sales
was Php 240,000 and the
desired ending inventory
was Php 84,000. The gross
profit rate is 40%. The
beginning inventory was?
ABC Corporation budgeted
sales of 18,000 units. The
budgeted beginning
inventory was 3,000 units
and the budgeted ending
inventory was 5,000 units.
Budgeted production is?
DEF Company had budgeted sales
of 44,000 units for January, and
60, 000 units for February. The
budgeted beginning inventory for
January 1 was 14,000 units. DEF
desires an ending inventory equal
to one-half to the following
month’s sales needs. Budgeted
production for January is?
GHI Company, manufactures a single
product. It keeps its inventory of
finished goods at 75% the coming
month’s budgeted sales, inventory of
raw materials at 50% of the coming
month’s budgeted production needs.
Each unit of product requires two
pounds of materials. The production
budget is, in units: May, 1,000; June,
1,200; July, 1,300; August, 1,600. Raw
material purchases in June would be ?
Problem 1
On March 31 RM Enterprises, a merchandising firm, had an
inventory of 38,000 units, and accounts receivable totaling
Php 85,000. Sales, in units, have been budgeted as follows
for the next four months

April .............. 60,000

May …………….. 75,000
June …………….. 90,000
July ……..……… 81,000

RM’s board of directors has established a policy to

commence in April that the inventory at the end of each
month should contain 40% of the units required for the
following month’s budgeted sales. The selling price is Php
2.00 per unit. One-third of sales are paid for by the
customers in the month of the sale, the balance is collected
in the following month.

1. Prepare a merchandise purchases budget showing how

many units should be purchased for each of the months
April, May, and June.

2. Prepare a schedule of schedule of expected cash

collections for each of the months April, May, and June.
Problem 2
A sales budget is given below for one of the products
manufactured by the Dodge Co.

January ................... 21,000 Units

February ………..……. 36,000 Units
March …………..…….. 61,000 Units
April……..………….….. 41,000 Units
May …………………..… 31,000 Units
June……..……………… 25,000 Units

The inventory of finished goods at the end of each moth

should equal to 20% of the next month’s sale. However, on
December 31 the finished goods inventory totaled only
4,000 units. Each unit of product requires three specialized
electrical switches by D’s suppliers is something irregular,
the company has a policy of maintaining an ending
inventory at the end of each month equal to 30% of the next
month’s production needs. This requirement had been met
on January 1 of the current year.

Required: Determine the quantity of switches to be

purchased each month for January, February, and March
and in total for the quarter.
Problem 3

JK Corporation is working on its direct labor budget

for the next three months. Each unit of output
requires 0.30 direct labor-hours. The direct labor
rate is Php 70.00 per direct labor-hour. The
production budget calls for producing 8,000 units
in April, 9,000 units in May and 10,000 units in
June. The company guarantees its direct labor
workers a 40-hour paid work week. With the
number of workers currently employed, that means
that the company is committed to paying its direct
labor work force for at least 2,840 hours in total
each month even if there is not enough work to
keep them busy

Required: Direct labor budget for the next three

months.
Problem 4

Spencer Company has obtained the following

sales forecast data:
July August Sept Oct
Cash sales ..... P 80,000 P 70,000 P 50,000 P 60,000
Credit sales.... P240,000 P220,000 P180,000 P200,000

The regular pattern of collection of credit

sales is 20% in the month of sale, 70% in
the month following the month of sale, and
the remainder in the second month following
the month of sale. There are no bad debts.

1. The budgeted accounts receivable balance

on September 30 is?
2. The budgeted cash receipts for October
are:
Problem 5

Star Corporation is preparing its cash

budget for July. The budgeted beginning
cash balance is Php 25,000. Budgeted
cash receipts total Php 141,000 and
budgeted cash disbursements total Php
139,000. The desired ending cash
balance is Php 30,000.

1. The excess (deficiency) of cash

available over disbursements for July is:

2. To attain its desired ending cash

balance for July, the company should
borrow:
Problem 6

FarmVille Supply is in a small town in the rural west. Data

regarding the store’s operations follows:

◘ Sales are budgeted at P290,000 for November, P310,000 for

December, and P210,000 for January.
◘ Collections are expected to be 65% in the month of sale, 33%
in the month of following the sale, and 2% uncollectible.
◘ The cost of good sold is 80% of sales.
◘ The company purchases 70% of its merchandise in the month
prior to the month of sale and 30% in the month of sale.
Payment for merchandises is made in the month following the
purchase.
◘ Other monthly expenses to be paid in cash are P21,100.
◘ Monthly depreciation of P21,000.
◘ Ignore taxes

1. Expected cash collections in December

2. The cost of December merchandise purchases
3. December cash disbursements for merchandise purchases
4. The excess (deficiency) of cash available over disbursements
for December
5. The net income for December
6. the cash balance at the end of December
7. The accounts receivable balance, net of uncollectible
accounts, at the end of December
8. Accounts payable at the end of December
9. Retained Earning at the end of December
Problem 6

FarmVille Supply is in a small town in the rural west. Data

regarding the store’s operations follows:

◘ Sales are budgeted at P290,000 for November, P310,000 for

December, and P210,000 for January.
◘ Collections are expected to be 65% in the month of sale, 33%
in the month of following the sale, and 2% uncollectible.
◘ The cost of good sold is 80% of sales.
◘ The company purchases 70% of its merchandise in the month
prior to the month of sale and 30% in the month of sale.
Payment for merchandises is made in the month following the
purchase.
◘ Other monthly expenses to be paid in cash are P21,100.
◘ Monthly depreciation of P21,000.
◘ Ignore taxes

1. Expected cash collections in December

2. The cost of December merchandise purchases
3. December cash disbursements for merchandise purchases
4. The excess (deficiency) of cash available over disbursements
for December
5. The net income for December
6. the cash balance at the end of December
7. The accounts receivable balance, net of uncollectible
accounts, at the end of December
8. Accounts payable at the end of December
9. Retained Earning at the end of December
Problem 6

FarmVille Supply is in a small town in the rural west. Data

regarding the store’s operations follows:

◘ Sales are budgeted at P290,000 for November, P310,000 for

December, and P210,000 for January.
◘ Collections are expected to be 65% in the month of sale, 33%
in the month of following the sale, and 2% uncollectible.
◘ The cost of good sold is 80% of sales.
◘ The company purchases 70% of its merchandise in the month
prior to the month of sale and 30% in the month of sale.
Payment for merchandises is made in the month following the
purchase.
◘ Other monthly expenses to be paid in cash are P21,100.
◘ Monthly depreciation of P21,000.
◘ Ignore taxes

1. Expected cash collections in December

2. The cost of December merchandise purchases
3. December cash disbursements for merchandise purchases
4. The excess (deficiency) of cash available over disbursements
for December
5. The net income for December
6. the cash balance at the end of December
7. The accounts receivable balance, net of uncollectible
accounts, at the end of December
8. Accounts payable at the end of December
9. Retained Earning at the end of December
Problem 6

FarmVille Supply is in a small town in the rural west. Data

regarding the store’s operations follows:

◘ Sales are budgeted at P290,000 for November, P310,000 for

December, and P210,000 for January.
◘ Collections are expected to be 65% in the month of sale, 33%
in the month of following the sale, and 2% uncollectible.
◘ The cost of good sold is 80% of sales.
◘ The company purchases 70% of its merchandise in the month
prior to the month of sale and 30% in the month of sale.
Payment for merchandises is made in the month following the
purchase.
◘ Other monthly expenses to be paid in cash are P21,100.
◘ Monthly depreciation of P21,000.
◘ Ignore taxes

1. Expected cash collections in December

2. The cost of December merchandise purchases
3. December cash disbursements for merchandise purchases
4. The excess (deficiency) of cash available over disbursements
for December
5. The net income for December
6. the cash balance at the end of December
7. The accounts receivable balance, net of uncollectible
accounts, at the end of December
8. Accounts payable at the end of December
9. Retained Earning at the end of December
Problem 6

FarmVille Supply is in a small town in the rural west. Data

regarding the store’s operations follows:

◘ Sales are budgeted at P290,000 for November, P310,000 for

December, and P210,000 for January.
◘ Collections are expected to be 65% in the month of sale, 33%
in the month of following the sale, and 2% uncollectible.
◘ The cost of good sold is 80% of sales.
◘ The company purchases 70% of its merchandise in the month
prior to the month of sale and 30% in the month of sale.
Payment for merchandises is made in the month following the
purchase.
◘ Other monthly expenses to be paid in cash are P21,100.
◘ Monthly depreciation of P21,000.
◘ Ignore taxes

1. Expected cash collections in December

2. The cost of December merchandise purchases
3. December cash disbursements for merchandise purchases
4. The excess (deficiency) of cash available over disbursements
for December
5. The net income for December
6. the cash balance at the end of December
7. The accounts receivable balance, net of uncollectible
accounts, at the end of December
8. Accounts payable at the end of December
9. Retained Earning at the end of December
Problem 6

FarmVille Supply is in a small town in the rural west. Data

regarding the store’s operations follows:

◘ Sales are budgeted at P290,000 for November, P310,000 for

December, and P210,000 for January.
◘ Collections are expected to be 65% in the month of sale, 33%
in the month of following the sale, and 2% uncollectible.
◘ The cost of good sold is 80% of sales.
◘ The company purchases 70% of its merchandise in the month
prior to the month of sale and 30% in the month of sale.
Payment for merchandises is made in the month following the
purchase.
◘ Other monthly expenses to be paid in cash are P21,100.
◘ Monthly depreciation of P21,000.
◘ Ignore taxes

1. Expected cash collections in December

2. The cost of December merchandise purchases
3. December cash disbursements for merchandise purchases
4. The excess (deficiency) of cash available over disbursements
for December
5. The net income for December
6. the cash balance at the end of December
7. The accounts receivable balance, net of uncollectible
accounts, at the end of December
8. Accounts payable at the end of December
9. Retained Earning at the end of December