BUDGETING

1.Carson, Inc., produces office supplies including pencils. Pencils are bundled in packages; each package
sells for P20. The sales budget for the first four months of the year follows for this product.
Unit Sales
January 100,000
February 120,000
March 110,000
April 100,000
Company policy requires that ending inventories for each month to be 10 percent of next month's sales.
However, due to greater sales in December than anticipated, the ending inventory of pencils for that
month is only 5,000 packages.
Required: Prepare a production budget for the first quarter of the year. Show the number of units that
should be produced each month as well as for the quarter in total.

2. Manning Company produces a variety of labels, including iron-on name labels, which are sold to
parents' camp-bounded children. (The camps require campers to have their name on every article of
clothing.) Each roll consists of 10 yards of paper strip with 500 copies of the child's name. each yard of
paper strip costs P2. Manning has budgeted production of the label rolls for the next four months as
follows:
March April May June

Rolls in units 6,000 9,000 15,000 10,000

Inventory policy requires that sufficient paper strip be in ending monthly inventory to satisfy 25 percent
of the following month's production needs. The inventory of paper strip at the beginning of March
equals exactly the amount needed to satisfy the inventory policy.
Required: a. Prepare a direct material purchases for March, April, and May showing purchases in units
and in pesos for each month and in total.
b. Each roll of labels produced requires (on average) 0.05 direct labor hour. The average cost of direct
labor is P60 per hour. Prepare a direct labor budget for March, April, and May showing the hours needed
and the direct labor cost for each month and in total.

3. Lawrence, Inc., found that about 20 percent of its sales during the month were for cash.
Lawrence has the following accounts receivable payment experience:
Percent paid in the month of sale 40%
Percent paid in the month after the sale 50%
Percent paid in the second month after the sale 8%
Lawrence's anticipated sales for the next few months are
April P240,000
May P288,000
June P276,000
July P295,000
August P300,000
Required: Prepare a cash receipts budget for July and August.

4. The following information was available from Pera Corporation's books:

200B Purchases Sales
July P4,000 P8,000
August 5,000 9,000
September 6,000 7,000
October 7,000 10,000
Collections from customers are normally 80% in the month of sale, 10% in the month following the sale,
and 8% in the second month following the sale. The balance is expected to be uncollectible. Pera takes
full advantage of the 2% discount allowed on purchases paid for by the tenth of the following month.
Purchases for November are budgeted at P4,000 while sales for November are forecasted at P6,000.
Operating expenses are expected to be P6,000 for the month of November, inclusive of P1,000
depreciation expense. Pera's cash balance at November 1 was P15,000.
Required: Prepare the following schedules:
a. Expected cash collections during November.
b. Expected cash disbursements during November.
c. Expected cash balance at November 30.

STANDARD COSTING-YIELD & MIX VARIANCE

1. Bautista Company manufactures breakfast cereal using the following proportion of ingredients for 200
kilos of output:
Standard Quantity Standard Price Standard Cost
Lon 25 kg P 2.00 per kg P 50
Willen 100 kg 1.00 per kg 100
Shane 125 kg 0.80 per kg 100
During June, the following materials were used in producing 70,000 kilos of breakfast cereals:
Lon 8,800 kilos at 2.05
Willen 34,700 kilos at 1.10
Shane 42,000 kilos at 0.75
Required: Compute the following materials variances:
1. Total materials variance
2. Price usage variance/Price Variance/Spending Variance
3. Yield Variance
4. Mix Variance

2. Betania Company manufactures a cleaning solvent. The company employs both skilled and unskilled
workers. To produce one 55-gallon drum of solvent requires Materials A and B as well as skilled labor and
unskilled labor The standard and actual material and labor information is presented below:

Standard:
Material A: 30.25 gallons @ P1.25 per gallon
Material B: 24.75 gallons @ P2.00 per gallon (

Skilled Labor: 4 hours @ P12 per hour

Unskilled Labor: 2 hours @ P7 per hour
 Actual:
Material A: 10,716 gallons purchased and used @ P1.50 per gallon
Material B: 17,484 gallons purchased and used @ P1.90 per gallon

Skilled labor hours: 1,950 @ P11.90 per hour

Unskilled labor hours: 1,300 @ P7.15 per hour
During the current month the company manufactured 500 55-gallon drums.

Round all answers to the nearest whole peso.

a. What is the total material price variance?

b. What is the total material mix variance?
c. What is the total yield variance
d. What is the labor rate variance?
e. What is the labor mix variance?
f. What is the labor yield variance?