THEORIES: C.

It aids in the use of resources and employees by setting a benchmark that

Basic Concepts can be used
1. The concept of “management by exception” refers to management’s for the subsequent evaluation of performance.
consideration of D.It provides organizational independence.
A. only those items that vary materially from expectations. 4. Which of the following is least likely a reason why a company prepares its
B. only rare events. budget?
C. samples selected at random. A.To provide a basis for comparison of actual performance
D. only significant unfavorable deviations. B.To communicate the company’s plans throughout the entire business
organization
8. A formal written statement of management’s plans for the future, C.To control income and expenditure in a particular period.
packaged in financial D.To make sure the company expands its operations.
terms, is a: 5. Which of the following does not contribute to an effective budgeting?
A.Responsibility report. C.Cost of production report. A.Top management is involved in budgeting.
B.Performance report. D.Budget. B.To give each manager a free hand in the preparation of the budget, the
2. Budgets are related to which of the following management functions? data within the
A.Planning C.Control master budget are flexible.
B.Performance evaluation D.all of these C.The organization is divided into responsibility units.
22.Budgeting supports the planning process by encouraging all of the D.There is communication of results.
following activities 6. The budgets that are based on a very high levels of performance, like
except: expected costs using
A.Requiring all organizational units to establish their goals for the coming ideal standards,
period. A.assist in planning the operations of the company
B.Increasing the motivation of managers and employees by providing agreed- B.stimulate people to perform better than they ordinarily would
upon C.are helpful in evaluating the performance of managers
expectations. D.can lead to low levels of performance
C.Improving overall decision making by considering all viewpoints, options, 7. Which of the following statements is incorrect?
and cost A.An imposed budget is the same as a participative budget.
control programs. B.Preparation of the budget would be the responsibility of each
D.Directing and coordinating operations during the period. responsibility unit.
3. Which of the following advantages does a budget mostly provide? C.Top management’s support is necessary to promote budget participation.
A.Coordination is increased. D.The top management should review and approve each responsibility unit’s
B.Planning is emphasized. budget.
C.Communication is continuous. 9. The primary role of the budget director and the budgeting department is
D.Comparison of actual versus budgeted data. to
24.Which of the following is NOT an advantage of budgeting? A.Settle disputes among operating executives during the development of the
A.It forces managers to plan. annual
B.It provides resource information that can be used to improve decision operating plan.
making.
B.Develop the annual profit plan by selecting the alternatives to be adopted
form the
suggestions submitted by the various operating segments.
C.Compile the budget and manage the budget process.
D.Justify the budget to the corporate planning committee of the board of
directors.
10.The primary variable affecting active participation and commitment to the
budget and the
control system is
A.Management efforts to achieve the budget rather than optimize results.
B.The rigid adherence to the budget without recognizing changing
conditions.
C.Top management involvement in support of the budget.
D.The opportunity budgeting gives to risk-taker managers for department
growth.
12.A variant of fiscal-year budgeting whereby a twelve-month projections
into the future is
maintained at all times:
A.Forecasting. C.Continuous budgeting.
B.Zero-based budgeting. D.Calendar budgeting.
35.The method of budgeting which adds one month’s budget to the end of
the plan when the
current month’s budget is dropped from the plan refers to
A.Long-term budget C.Incremental budget
B.Operations budget D.Continuous budget
27.A continuous budget
A.is a budget that is revised monthly or quarterly.
B.is a medium term plan that consists of more than 2 years’ projections.
C.is appropriate only for use of a not-for-profit entity.
D.works best for an entity that can reliably forecast events a year or more
into the future.
37.“Incremental budgeting” refers to
A.line-by-line approval of expenditures
B.setting budget allowances based on prior year expenditures
C.requiring top management approval of increases in budgets
D.using incremental revenues and costs in budgeting
49.A budget plan for annual fixed costs that arises from top management
decisions directly
reflecting corporate policy.
A.Flexible budget. C.Discretionary budget.
B.Static budget. D.Program budget.
36.The term “decision package” relates to
A.comprehensive budgeting C.program budgeting
B.zero-based budgeting D.line budgeting
41.The budget approach that is more relevant when the continuance of an
activity or operation
must be justified on the basis of its need or usefulness to the organization.
A.the incremental approach C.the baseline approach
B.the zero-based approach D.both a and b are true
11.The process of developing budget estimates by requiring all levels of
management to
estimate sales, production, and other operating data as though operations
were being
initiated for the first time is referred to as:
A.Forecasting. C.Continuous budgeting.
B.Zero-based budgeting. D.Program budgeting.
38.Which of the following is a contemporary approach to budgeting?
A.incremental approach C.baseline approach
B.zero-based approach D.both a and b are true
51.Zero-base budgeting requires managers to
A.Justify expenditures that are increases over the prior period’s budgeted
amount.
B.Justify all expenditures, not just increases over last year’s amount.
C.Maintain a full-year budget intact at all times.
D.Maintain a budget with zero increases over the prior period.
13.Zero-based budgeting:
A.involves the review of changes made to an organization’s original budget.
B.does not provide a summary of annual projections.
C.involves the review of each cost component from a cost/benefit
perspective.
D.emphasizes the relationship of effort to projected annual revenues.
18.A systematized approach known as zero-based budgeting:
A.Classifies the budget by the prior year’s activity and estimates the benefits
arising from
each activity.
B.Commence with either the current level of spending or projected 16.A flexible budget is
whichever is lower. A.one that can be changed whenever a manager so desires
C.Presents planned activities for a period of time but does not present a firm B.adjusted to reflect expected costs at the actual level of activity
commitment. C.one that uses the formula total costs = cost per unit x units produced
D.Divides the activities of individual responsibility centers into a series of D.the same as a continuous budget
packages that are prioritized 26.A series of budgets for varying levels of activity is a:
20.Which of the following statements about Zero-based budgeting is A.Variable cost budget. C.Master budget.
incorrect? B.Flexible budget. D.Zero-based budget.
A.All activities in the company are organized into break-up units called 48.If a company wishes to establish a factory overhead budget system in
packages. which estimated costs
B.All costs have to be justified every budgeting period. can be derived directly from estimates of activity levels, it should prepare a
C.The process is not time consuming since justification of costs can be done A.flexible budget. C.Discretionary budget.
as a routine B.Program budget. D.Manufacturing budget.
matter. 46.The basic difference between a master budget and a flexible budget is
D.Zero-based budgeting includes variable costs only. that a
34.Budgeting expenditures by purpose is called A.Flexible budget considers only variable costs but a master budget
A.program budgeting C.zero-based budgeting considers all costs.
B.line budgeting D.flexible budgeting B.Flexible budget allows management latitude in meeting goals whereas a
28.A static budget is not appropriate in evaluating a manager's effectiveness master budget
if a company has is based on a fixed standard.
A.substantial fixed costs. C.Master budget is for an entire production facility but a flexible budget is
B.substantial variable costs. applicable to
C.planned activity levels that match actual activity levels. single department only.
D.no variable costs. D.Master budget is based on one specific level of production and a flexible
45.Flexible budgeting is a reporting system wherein the budget can be
A.Budget standards may be adjusted at management’s discretion. prepared for any production level within a relevant range
B.Planned level of activity is adjusted to the actual level of activity before the 47.Which of the following is a difference between a static budget and a
performance flexible budgets?
report is prepared. A.A flexible budget includes only variable costs; a static budget includes only
C.Reporting dates vary according to the managerial levels of the users. fixed costs.
D.Packages of activities vary from period to period. B.A flexible budget includes all costs, a static budget includes only fixed
15.A budget that presents the plan for a range of activity so that the plan costs.
can be adjusted for C.A flexible budget gives different allowances for different levels of activity, a
changes in activity levels is referred to as: static budget
A.Zero-based budgeting. does not.
B.Continuous budgeting. D.There is no difference between the two.
C.Flexible budgeting. 17.A system that classifies budget requests by activity and estimates the
D.Program planning and budgeting system. benefits arising from
each activity: 42.Which of the following is not a potential problem with participative
A.Incremental budgeting system. budgeting?
B.Static budgeting system. A.setting standards that are either too high or too low
C.Program planning and budgeting system. B.padding the budget
D.Participative system. C.build slack into the budget
21.A budget that identifies revenues and costs with an individual controlling D.all of the above are potential problems
their incurrence is 33.The ideal financial planning process would be
A.Master budget C.Product budget A.top-down planning.
B.Responsibility budget D.None of the above B.bottom-up planning.
25.The difference between an individual's submitted budget projection and C.a combination of top-down and bottom-up planning.
his or her bestestimate of the item being projected is an example of D.None of the above
A.padding the budget 44.A common starting point in the budgeting process is
B.adhering to zero-based budgeting assumptions A.expected future net income. C.to motivate the sales force.
C.creating budgetary slack B.past performance. D.a clean slate, with no expectations.
D.being incongruent with participative budgeting 57.Which one of the following is an external factor that would need to be
43.Budget slack is a condition in which considered in forming an
A.Demand is low at various times of the year initial budget proposal?
B.Excess machine capacity exists in some areas of the plant A.changes in product design
C.There is an intentional overestimate of expenses or an underestimate of B.introduction of a new product
revenues C.competitors' actions
D.Managers grant favored employees extra time-off D.adoption of a new manufacturing process
39.The procedure for setting profit objectives in which the determination of 14.Operating budgets are
profit objectives is A.a forecast of expected operating expenses.
subordinated to the planning, and the objectives emerge as the product of B.a forecast of operating expenses and related revenues.
the planning itself C.a forecast of units of production.
is the D.concerned with the income-generating activities of a firm.
A.a priori method C.practical method 54.What is the proper preparation sequencing of the following budgets?
B.theoretical method D.a posteriori method 1. Budgeted Balance Sheet
40.The procedure for setting profit objectives in which management specifies 2. Sales Budget
a given rate of 3. Selling and Administrative Budget
return that it seeks to realize in the long run by means of planning toward 4. Budgeted Income Statement
that end is the A.1, 2, 3, 4 C.2, 3, 4, 1
A.a priori method C.pragmatic method B 2, 3, 1, 4 D.2, 4, 1, 3
B.theoretical method D.ad hoc method 29.In estimating the sales volume for a master budget, which of the
50.Budgeting process in which information flows top down and bottom up is following techniques may
referred to as: be used to improve the projections?
A.Continuous budgeting. C.Perpetual budgeting A.Brainstorming.
B.Participative budgeting D.Joint budgeting B.Statistical analysis.
C.Estimating from previous sales volume. A.forecasting sales
D.All of these are useful. B.establishing minimum required cash balances
30.Using the concept of ‘expected value” in sales forecasting means that the C.forecasting only fixed costs
sales forecast to be D.omitting expected dividend payments from budgeted disbursements
used is 19.Which of the following statements is True?
A.developed using the indicator method A.Under zero-based budgeting, a manager is required to start at zero budget
B.the sum of the sales expected by individual managers levels each
C.based on expected selling prices of the products period, as if the programs involved were being initiated for the first time.
D.based on probabilities B.The primary purpose of the cash budget is to show the expected cash
31.Several sales forecasts are available from different sources and the balance at the end
managers have good of the budget period.
ideas about their likelihoods. This situation call for the use of C.Budget data are generally prepared by top management and distributed
A.the expected value concept C.indicator methods downward in an
B.historical analysis D.a scatter diagram organization.
53.An overly optimistic sales budget may result in D.The budget committee is responsible for preparing detailed budget figures
A.increases in selling prices late in the year. in an
B.insufficient inventories. organization.
C.increased sales during the year. 23.Which of the following is a valid statement?
D.excessive inventories. A.Responsibility budget identifies revenue and costs with the individual
56.Which of the following budgets provides the data for the preparation of responsible for their
the direct labor cost incurrence.
budget? B.The best way to establish budget figures is to use last year’s actual cost
A.Direct materials purchase budget. C.Sales budget. and activity data
B.Cash budget. D.Production budget. as this year’s budget estimates.
55.The increased use of automation and less use of the work force in C.A sales budget and a sales forecast are the same thing.
companies has caused a D.The primary purpose of the cash budget is to show the expected cash
trend towards an increase in balance at the end
A.both variable and fixed costs. of the budget period.
B.fixed costs and a decrease in variable costs. PROBLEMS:
C.variable costs and a decrease in fixed costs. Cost estimation formula
D.variable costs and no change in fixed costs. 1. Management has prepared a graph showing the total costs of operating
32.In preparing a cash budget, which of the following is normally the branch warehouses
starting point for projecting throughout the country. The cost line crosses the vertical axis at P400,000.
cash requirements? The total cost
A.Fixed assets. C.Accounts receivable. of operating one branch is P650,000. The total cost of operating ten
B.Sales. D.Inventories. branches is
52.Recognition of the many uncertainties in budgeting is exemplified by P2,900,000. For purposes of preparing a flexible budget based on the
companies normally number of branch
warehouses in operation, what formula would be used to determine Production budget
budgeted costs at 6. Montalban Company’s sales budget shows the following expected sales for
various levels of activity? the following year:
A. Y = P400,000 + P250,000X C.Y = P650,000 + P400,000X Quarter Units
B. Y = P400,000 + P290,000X D.Y = P650,000 + P250,000X First 120,000
Sales budget Second 160,000
Purchases budget – merchandising concern Third 90,000
2. PTO Company desires an ending inventory of P140,000. It expects sales of Fourth 110,000
P800,000 and Total 480,000
has a beginning inventory of P130,000. Cost of sales is 65% of sales. The inventory at December 31 of the prior year was budgeted at 36,000
Budgeted purchases units. The quantity
are of finished goods inventory at the end of each quarter is to equal 30% of the
A.P 530,000 C.P 810,000 next quarter’s
B.P 790,000 D.P1,070,000 budgeted sales of units.
3. Calypso Co. has projected sales to be P600,000 in January, P750,000 in How much should the production budget show for units to be produced
February, and during the first
P800,000 in March. Calypso wants to have 50% of next month’s sales needs quarter?
on hand at the A. 48,000 C.132,000
end of a month. If Calypso has an average gross profit of 40%, what are the B. 96,000 D.144,000
February 28 7. Lorie Company plans to sell 400,000 units of finished product in July an
purchases? anticipates a growth
A.P465,000 C.P775,000 rate in sales of 5% per month. The desired monthly ending inventory in
B.P310,000 D.P428,000 units of finished
4. Blue Company budgeted purchases of P100,000. Cost of sales was product is 80% of the next month’s estimated sales.
P120,000 and the desired There are 300,000 finished units in the inventory on June 30. Each unit of
ending inventory was P42,000. The beginning inventory was finished product
A.P20,000 C.P42,000 requires four pounds of direct materials at a cost of P2.50 per pound. There
B.P32,000 D.P62,000 are 800,000
5. The payment schedule of purchases made on account is: 60% in the time pounds of direct materials in the inventory on June 30.
period of How many units should be produced for the three-month period ending
purchase, 30% in the following time period, and 10% in the subsequent time September 30?
period. Total A.1,260,000 C.1,331,440
credit purchases were P200,000 in May, and P100,000 in June. Total B.1,328,000 D.1,424,050
payments on credit Ending inventory budget
purchases were P140,000 in June. What were the credit purchases in the 8. If the required direct materials purchases are 8,000 pounds and the
month of April? direct materials required
A.P200,000 C.P145,000 for production is three times the direct materials purchases, and the
B.P100,000 D.P215,000 beginning direct
materials are three and a half times the direct materials purchases, what are 1,600. Raw material purchases in July would be
the desired A.1,525 pounds C.2,550 pounds
ending direct material in pounds? B.2,900 pounds D.3,050 pounds
A.20,000 C.12,000 12.Each unit of finished product uses 6 kilograms of raw materials. The
B. 4,000 D.32,000 production and inventory
Raw materials usage budget budgets for May 2007 are as follows:
9. Minerva Company sells a single product. Budgeted sales for the year are Beginning Inventory:
anticipated to be Finished goods 15,000 units
640,000 units. The estimated beginning and ending finished goods inventory Raw materials 21,000 kg.
are 108,000 Budgeted unit sales 18,000 units
and 90,000, respectively. A production of one unit requires the following Planned ending inventory
materials: Finished goods 11,400 units
Material LL 0.50 lb. @ P0.60 Raw materials 24,400 kg.
Material MM 1.00 lb. @ P1.70 During the production process, it is usually found that 10% of production
Material NN 1.20 lb. @ P1.00 units are scrapped as
What are the respective peso amounts of each material to be used in defective and this loss occurs after the raw materials have been placed in
production during the process.
year? How many kilograms of raw materials should be purchased in June?
Material LL Material MM Material NN A.89,800 C.96,000
A. P181,200 P1,026,800 P724,800 B.98,440 D.99,400
B. P181,200 P1,026,800 P746,400 13.Violet Company manufactures a single product. It keeps its inventory of
C. P186,600 P1,057,400 P746,400 finished goods at
D. P186,600 P1,057,400 P724,800 twice the coming month’s budgeted sales, inventory of raw materials at
Raw materials purchases budget 150% of the coming
10.If there were 30,000 pounds of raw material on hand on January 1, month’s budgeted production requirements. Each unit of product requires
60,000 pounds are desired for inventory at December 31, and 180,000 two pounds of
pounds are required for annual production, how many pounds of raw materials. The production budgets in units consist of the following:.
material should be purchased during the year? May 1,000
A.150,000 pounds C.120,000 pounds June 1,200
B.240,000 pounds D.210,000 pounds July 1,300
11.Silver Bowl Company manufactures a single product. It keeps its August 1,600
inventory of finished goods Raw material purchases in June would be
at 75% the coming month’s budgeted sales. It also keeps its inventory of raw A.2,600 pounds C.2,400 pounds
materials at 50% B.1,800 pounds D.2,700 pounds
of the coming month’s budgeted production. Each unit of product requires 14.Sales Company is budgeting sales of 300,000 units of its only product for
two pounds of the coming year.
materials. The production budget is, in units: May, 1,000; June, 1,200; Production of one unit of product requires three pounds of Material Q and 2
July, 1,300; august, pounds of
Material L. Inventory units at the beginning of the year are: A.113,750 C. 46,250
Actual, Jan. 1 Budgeted, Dec 31 B.109,375 D.112,500
Finished goods 60,000 50,000 Indirect labor costs
Material Q 80,000 60,000 17.Namuco, Inc. uses flexible budgeting for cost control. During the month
Material L 88,000 96,000 of September,
How many pounds of Material Q is Sales planning to buy during the coming Namuco, Inc. produced 14,500 units of finished goods with indirect labor
year? costs of P25,375.
A.850,000 C.862,000 Its annual master budget reflects an indirect labor costs, a variable cost, of
B.890,000 D.908,000 P360,000 based
15.Strama Company prepares its budgets on annual basis. The following on an annual production of 200,000 units. In the preparation of
beginning and ending performance analysis for the
inventory unit levels are planned for the fiscal year of June 1, 2006 through month of September, how much flexible budget should be allowed for
May 31, 2007. indirect labor costs?
June 1, 2006 May 31, 2007 A.P30,000 C.P25,375
Raw material* 40,000 50,000 B.P29,167 D.P26,100
Work-in-process 10,000 10,000 Cash receipts budget
Finished goods 80,000 50,000 Sales
*Two (2) units of raw material are needed to produce each unit of finished 18.Generous Company began its operations on January 1 of the current
product. year. Budgeted sales
If 500,000 finished units were to be manufactured during the 2006-2007 for the first quarter are P240,000, P300,000, and P420,000, respectively, for
fiscal year by January,
Strama Company, the units of raw material needed to be purchased would February and March. Generous Company expects 20% of its sales cash and
be the remainder
A.1,000,000 units C.1,020,000 units on account. Of the sales on account, 70% are expected to be collected in the
B.1,010,000 units D. 990,000 units month of sale,
16. Diliman Corporation includes the following quarterly budget for 25% in the month following the sale, and the remainder in the following
production: month.
Quarter Production How much should Generous receive from sales in March?
First 60,000 units A.P304,800 C.P388,800
Second 45,000 units B.294,000 D.P295,200
Third 40,000 units Credit sales
Fourth 65,000 units 19.Mendrez Company has a collection schedule of 60% during the month of
Each unit of product requires 2.5 kilograms of direct materials. The sales, 15% the
company begins each following month, and 15% subsequently. The total credit sales in the current
quarter with inventory of direct materials equal to 25 percent of the total month of
quarter’s material September were P80,000 and total collections in September were P57,000.
requirements. What were the
What is the budgeted purchases of materials for the second quarter? credit sales in July?
A.P90,000 C.P45,000 The sales on open account have been budgeted for the last six months of
B.P30,000 D.P32,000 2007 are shown
Cash collections below:
20.Obligacion Company has P299,000 in accounts receivable on January 1, July P 60,000
2006. Budgeted August 70,000
sales for January are P860,000. Obligacion expects to sell 20% of its September 80,000
merchandise for cash. October 90,000
Of the remaining sales, 75% are expected to be collected in the month of sale November 100,000
and the December 85,000
remainder the following month. The estimated total cash collections during the fourth calendar quarter from
The January cash collections from sales are: sales made on
A.P815,000 C.P471,000 open account during the fourth calendar quarter would be
B.P691,000 D.P987,000 A.P172,500 C.P265,400
21.Adel Company has the following sales forecasts for the selected three- B.P230,000 D.P251,400
month period in 2007: 23.The Le Amore Company had the following budgeted sales for the first half
Month Sales of the current
April P12,000 year:
May 7,000 Cash Sales Credit Sales
June 8,000 January P70,000 P340,000
Seventy percent of sales are collected in the month of the sale, and the February 50,000 190,000
remainder is March 40,000 135,000
collected in the following month. April 35,000 120,000
Accounts receivable balance (April 1, 2007) P10,000 May 45,000 160,000
Cash balance (April 1, 2007) 5,000 June 40,000 140,000
Minimum cash balance is P5,000. Cash can be borrowed in P1,000 The company is in the process of preparing a cash budget and must
increments from the determine the expected
local bank (assume no interest charges). cash collections by month. To this end, the following information has been
How much cash would be collected in June from sales? assembled:
A.P 7,700 C.P 8,000 Collections on sales: 60% in month of sale
B.P 8,500 D.P10,000 30% in month following sale
22.The Avelina Company has the following historical pattern on its credit 10% in second month following sale
sales. The accounts receivable balance on January 1 of the current year was
70 percent collected in month of sale P70,000, of which
15 percent collected in the first month after sale P50,000 represents uncollected December sales and P20,000 represents
10 percent collected in the second month after sale uncollected
4 percent collected in the third month after sale November sales.
2 percent uncollectible The total cash collected by Le Amore Company during the month of January
would be:
A.P410,000 C.P344,000 retail outlets, Lazaro is making the following sales projections:
B.P254,000 D.P331,500 Cash Sales Credit Sales
Accounts receivable balance January P600,000 P400,000
24.As of January 1, 2007, the Liberal Sales Company had an account February 300,000 500,000
receivable of P500,000. March 400,000 600,000
The sales for January, February, and March were as follows: P1,200,000, April 400,000 800,000
P1,400,000 and Lazaro estimates that 70% of the credit sales will be collected in the month
P1,500,000, respectively. Of each month’s sales, 80% is on account. 60% of following the
account sales month of the sale, with the balance collected in the second month following
is collected in the month of sale, with remaining 40% collected in the the sale. Based
following month. on these data, the balance in accounts receivable on January 31 will be
What is the accounts receivable balance as of March 31, 2007? increased by
A.P720,000 C.P587,200 A.400,000 C.P120,000
B.P480,000 D.P600,000 B.P280,000 D.P580,000
Credit to accounts receivable Cash disbursements
25.Ironman Company is preparing its cash budget for the month ending 27.Cascades Company, a merchandising firm, is preparing its master budget
November 30. The and has gathered
following information pertains to Ironman’s past collection experience from the following data to help budget cash disbursements:
its credit sales: Budgeted data:
Current month’s sales 12% Cost of goods sold P1,680,000
Prior month’s sales 75% Desired decrease in inventories 70,000
Sales two months prior to current month 6% Desired decrease in Accounts Payable 150,000
Sales three months prior to current month 4% All of the accounts payables are for inventory purchases and all inventory
Cash discounts (2/30, net/90) 2% items are
Doubtful accounts 1%
Credit sales: budget period?
November – estimated P2,000,000 A.P1,460,000 C.P1,900,000
October 1,800,000 B.P1,600,000 D.P1,760,000
September 1,600,000 28.Albatross Company started its commercial operations on September 30 of
August 1,900,000 the current year.
How much is the estimated credit to Accounts Receivable as a result of Projected manufacturing costs for the first three months of operations are
collections expected P1,568,000,
during November? P1,952,000, and P2,176,000, respectively. Depreciation, insurance, and
A.P1,730,200 C.P1,762,000 property taxes
B.P1,757,200 D.P1,802,000 represent P288,000 of the estimated manufacturing costs. Insurance was
Increase in accounts receivable paid on
26.Lazaro Company will open a new store on January 1. Based on September 30, and property taxes will be paid in July next year. Seventy-five
experience from its other percent of the
remainder of the manufacturing costs are expected to be paid in the month c. Sixty percent of the billings are collected within the discount period,
in which they are twentyfive percent are collected by the end of the month, nine percent are
incurred, with the balance to be paid in the following month. The cash collected by the end
payments for of the second month, and six percent are considered entirely uncollectible.
manufacturing costs in the month of November are: Purchases:
A.P1,568,000 C.P1,664,000 1. Fifty four percent of all purchases and selling, general, and administrative
B.P1,952,000 D.P1,856,000 expenses
Ending cash balance are paid in the month purchased and the remainder in the following month.
29.Albania Company expects its June sales to be P300,000, which is 25% 2. Each month’s units of ending inventory is equal to one hundred thirty
higher than its May percent of the
sales. Purchases were P200,000 in May and are expected to be P240,000 in next month’s units of sales.
June. All sales 3. The cost of each unit of inventory is P200.
are on credit and are collected as follows: 80% in the month of the sale and 4. Selling, general, and administrative expenses, of which P20,000 is
20% in the depreciation, are
following month. All payments in the month of sales are given 2% discount. equal to fifteen percent of the current month’s sales.
Sixty percent of Actual and projected sales are as follows:
purchases are paid in the month of purchase to take advantage of purchase UNITS PESOS
term of 1/10, November 11,800 P3,540,000
n/40. The remaining amount is paid in the following month. The beginning December 12,100 3,630,000
cash balance on January 11,900 3,570,000
June 1 is P20,000. The ending cash balance on June 30 would be: February 11,400 3,420,000
A.P64,160 C.P80,640 March 12,000 3,600,000
B.P73,000 D.P85,440 April 12,200 3,660,000
Comprehensive 30.The respective amounts of budgeted purchases for the months of
Question Nos. 30 through 33 are based on the following information: January and February
Apollo Merchandiser asks your services to develop cash and other budget are:
information for the A.P2,418,000 and P2,360,000 C.P2,250,000 and P2,436,000
first quarter of 2007. In December 31, the store had the following balance: B.P2,380,000 and P2,280,000 D.P3,570,000 and P3,420,000
Cash P 55,000 31.The budgeted cash disbursements for the month of February are:
Accounts receivable 4,370,000 A.P2,929,000 C.P2,949,000
Inventories 3,094,000 B.P2,873,790 D.P2,853,790
Accounts payable 1,330,550 32.The amount of cash collected from sales during the month of January is:
The following information are relevant to 2007 operations: A.P3,338,760 C.P3,404,100
Sales: B.P3,551,160 D.P3,556,560
a. Each month’s sales are billed on the last day of the month. 33.The number of units to be purchased during the month of March is:
b. Customers are allowed a 3 percent discount if payment is made within 10 A.15,860 C.12,000
days after the billing date. Receivables are booked gross. B.12,260 D.15,600
Rajah Enterprises is a growing retailer of home care products. During the A.P 27,200 C.P137,856
first four months of the B.P117,200 D.P 33,600
following year, it forecasts the following sales and purchases: 35.How much does Atlanta plan to disburse in the month of June?
Sales Purchases A.P 41,600 C.P207,200
January P7,200,000 P4,200,000 B.P100,000 D.P117,200
February 6,600,000 4,800,000 Question Nos. 36 through 38 are based on the following:
March 6,000,000 3,600,000 Super Sales’ actual sales and purchases for April and May are shown here
April 7,800,000 5,400,000 along with forecasted
Rajah collects 70% of sales is collection during the month of sale, 20% the sales and purchases for June through September.
following month and Sales Purchases
9% in the second month. 1% of sales are deemed uncollectible. April (Actual) P390,000 P200,000
In order to fully avail of the 2% discount, Rajah pays all the purchases by May (Actual) 420,000 220,000
the tenth of the month June (forecast) 390,000 210,000
following the month of purchase. July (forecast) 350,000 240,000
Sales for the month of May are expected to be P6,600,000 and the amount of August (forecast) 420,000 320,000
purchases are September (forecast) 410,000 230,000
P6,000,000. Operating expenses to be paid during the month of May will be The company makes 10 percent of its sales for cash and 90 percent on
P1,440,000 and the credit. Of the credit sales,
cash balance by May 1 is P2,200,000. 30 percent are collected in the month after the sale and 70 percent are
The Atlanta Corporation has forecast the following sales for the first seven collected two months after.
months of the year: Super Sales pays for 45 percent of its purchases in the month after
January P120,000 May P120,000 purchase and 55 percent two
February 160,000 June 200,000 months after.
March 180,000 July 220,000 Labor expense equals 15 percent of the current month's sales. General
April 240,000 overhead expense equals
Monthly material purchases are set equal to 20 percent of forecasted sales P10,000 per month. Interest payments of P35,000 are due in June and
for the next month. Of September. A cash dividend
the total material costs, 40 percent are paid in the month of purchase and of P25,000 is scheduled to be paid in June. Tax payments of P30,000 are
60 percent in the due in June and
following month. Labor costs will run P60,000 per month, and fixed September. There is a scheduled purchase for cash of an equipment,
overhead is P30,000 per month. P290,000 in September.
Interest payments on the debt will be P45,000 for both March and June. Super Sales’ ending cash balance in May is P25,000. The minimum desired
Finally, Atlanta’s sales cash balance is
force will receive a 3 percent commission on total sales for the first six P20,000. The maximum desired cash balance is P50,000. Excess cash
months of the year, to be (above P50,000) is used
paid on June 30. to buy marketable securities. Marketable securities are sold before
34.How much will be paid in the month of January for the purchase of borrowing funds in case of a
materials? cash shortfall (less than P20,000).
36.During the month of June, Super Sales expects to receive cash from sales normal 30-day credit period (the month after the sale) and the other 50
amounting to: percent in 60 days (two
A.P606,000 C.P398,100 months after the sale). It pays for its materials 30 days after receipt. In
B.P408,900 D.P359,100 general, Ms. Tee likes to
37.The cumulative amount of marketable securities purchased as of July 31 keep a two-month supply of inventory in anticipation of sales. Inventory at
amounts to: the beginning of
A.P126,000 C.P143,300 December was 2,600,000 units. (This was not equal to her desired two-
B.132,500 D.P 0 month supply.)
38.The amount of loan to be obtained to maintain a balance of P50,000 cash The major cost of production is the purchase of raw materials in the form of
as of September 30 steel rods, which are
will be: cut, threaded, and finished. Last year raw material costs were P52 per 1,000
A.P109.4 C.P 9.4 fasteners, but Ms. Tee
B.P 59.4 D.P 0.0 has just been notified that material costs have risen, effective January 1, to
Question Nos. 39 through 45 are based on the following data: P60 per 1,000
The Ingo Corporation makes standard-size 2-inch fasteners, which it sells fasteners. The Ingo Corporation uses FIFO inventory accounting. Labor costs
for P155 per thousand. are relatively
Irine Tee, the major stockholder, manages the inventory and finances of the constant at P20 per thousand fasteners, since workers are paid on a
company. She piecework basis. Overhead is
estimates sales for the following months to be: allocated at P10 per thousand units, and selling and administrative expense
January P263,500 (1,700,000 fasteners) is 20 percent of sales.
February P186,000 (1,200,000 fasteners) Labor expense and overhead are direct cash outflows paid in the month
March P217,000 (1,400,000 fasteners) incurred, while interest and
April P310,000 (2,000,000 fasteners) taxes are paid quarterly.
May P387,500 (2,500,000 fasteners) The corporation usually maintains a minimum cash balance of P25,000, and
Last year Ingo Corporation's sales were P175,000 in November and it puts its excess cash
P232,500 in December into marketable securities. The average tax rate is 40 percent, and the
(1,500,000 fasteners). company usually pays out
Ms. Tee is preparing for a meeting with Peninsula Banking Corporation to 50 percent of net income in dividends to stockholders. Marketable securities
arrange the financing for are sold before funds
the first quarter. Based on her sales forecast and the following information are borrowed when a cash shortage is faced. Ignore the interest on any
she has provided, you short-term borrowings.
have to prepare a monthly cash budget, a monthly and quarterly pro forma Interest on the long-term debt is paid in March, as are taxes and dividends.
income statement, a pro As of year-end, the Ingo Corporation balance sheet was as follows:
forma quarterly balance sheet, and all necessary supporting schedules for Ingo Corporation
the first quarter. Balance Sheet
Past history shows that Ingo Corporation collects 50 percent of its accounts December 31, 2006
receivable in the ASSETS
Current assets:
Cash P 30,000 made on credit. Sales are billed twice monthly, on the 10th of the month for
Accounts receivable 320,000 the last half of the prior
Inventory 237,800 month’s sales, and on the 20th of the month for the first half of the current
Total current assets 587,800 month’s sales. The
Plant and equipment, net of accumulated depreciation of P200,000 800,000 terms of all sales are 2/10, net 30. Based upon past experience, the
Total Assets P1,387,800 collection of accounts
LIABILITIES AND STOCKHOLDERS’ EQUITY receivable is as follows:
Accounts payable P 93,600 Within the discount period 80%
Long-term debt, 8% 400,000 On the 30th day 18%
Common stock 504,200 Uncollectible 2%
Retained earnings 390,000 Russon’s average markup on its products is 20% of the sales price. All sales
Total Liabilities and Stockholders’ Equity P1,387,800 and purchases occur
39.The budgeted production respective to each month of the first quarter of uniformly throughout the month. The sales value of shipments for May and
the coming year are: the forecasts for the
A.1,400,000; 2,000,000; 2,500,000 C.2,500,000; 2,000,000; 1,400,000 next four months follow:
B.1,400,000; 2,500,000; 2,000,000 D.2,000,000; 1,400,000; 2,500,000 May (actual) P500,000
40.The amount of accounts payable paid in March for the purchase of June 600,000
materials is: July 700,000
A.P150,000 C.P104,000 August 700,000
B.P120,000 D.P130,000 September 400,000
41.The expected cash collections on accounts receivable in the month of Russon purchases merchandise for resale to meet the current month’s sales
February are: demand and to
A.P224,750 C.P 93,000 maintain a desired monthly ending inventory of 25% of the next month’s
B.P248,000 D.P186,000 sales. All purchases are
42.The amount of accounts receivable outstanding as of March 31, 2007 is: on credit with terms of net/30. Russon pays for 50% of a month’s purchases
A.P217,000 C.P310,000 in the month of
B.P224,750 D.P108,500 purchase and 50% in the month following the purchase.
43.The cost of goods sold for the first quarter of the coming year amounts to: 46.How much cash can Russon plan to collect in September from sales
A.P363,800 C.P426,400 made in August?
B.P453,600 D.P373,400 A.P337,400 C.P400,400
44.The total cash and marketable securities as of January 31 will be: B.P343,000 D.P280,000
A.P45,450 C.P91,800 47.The budgeted peso value of Russon’s inventory on August 31 will be
B.P25,000 D.P54,450 A.P110,000 C.P112,000
45.The expected net income during the first quarter of the coming year is: B.P 80,000 D.P100,000
A.P 91,080 C.P 96,840 48.How much cash can Russon plan to collect from accounts receivable
B.P161,400 D.P151,800 during July?
Question Nos. 46 through 48 are based on the Russon Corporation, a A.P574,000 C.P619,000
retailer whose sales are all
B.P662,600 D.P608,600