University of San Jose – Recoletos

School of Business and Management

Accountancy and Finance Department
Strategic Business Analysis
Mr. Jun Brian Alenton
CPA, CMA, CAT, RCA, MICB, MBA

Module 2
Operational Budgeting

CONCEPT REVIEW:
BASIC MANAGEMENT FUNCTIONS

An Overview of the Planning Process

Source: Drury

Planning
§ Developing objectives and preparing various budgets to achieve those objectives

Directing and Coordinating

§ Involves the steps taken by management to increase the likelihood that the objectives set
down while planning are attained and that all parts of the organization are working together
toward that goal

Controlling
§ Examining the actual results and compare them with plans, identify any deviations, investigate
reasons for these deviations, and use results for better planning for the next cycle

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Planning Principles
1. Strategic Planning
Þ Long-term action plans
2. Budgetary Planning
Þ Short-term to medium-term plans
3. Operational Planning
Þ Short-term or day-to-day plans

Points to Recall
¨ The importance of the Vision, Mission, Goals of the organization
¨ The importance of identifying the strategy chosen by the organization
¨ The benefits of using the balanced scorecard

Strategic Planning
The process of deciding on the programs the organization will undertake to implement its strategies
and on the approximate amount of resources to be allocated to each program

Strategic Planning: 3 Main Parts

1. Reviewing ongoing programs
2. Considering proposals for new programs
3. Coordinating programs by means of a formal strategic planning system

Management by Objectives
Tracking managers’ performances against a number of specific objectives expected to be achieved
during a given measurement period

Budget
Æ A quantified plan of action relating to a given period of time
Æ Developed in advance of the period that it covers and is based on forecasts and assumptions
(CMA)
Æ A plan expressed in quantitative, usually monetary, terms covering a specified period of time,
usually one year (Anthony)
Æ The budget and its administration are entirely management’s responsibility
Æ Also called as the “profit plan”

For a budget to be useful, it must be quantified.

§ Definite target
§ Yardstick for control purposes
“We plan to spend as little as possible in running the printing department this year.”

versus

“Budgeted revenue expenditure for the printing department this year is P60,000.”

REMEMBER: OBJECTIVES MUST BE SMART

S – Specific
M – Measurable
A – Attainable
R – Relevant
T – Time-bound

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 The Ultimate Objective of Budgeting
Superior performance, leading to profitability, leading to growth in shareholder value
(“profitable growth”)

Preparing a budget for the sake of preparing a budget is pointless. The organization must benefit
from both the process of preparing the budget and from the budget itself as a guide.
A budget is an aid to management; not a substitute for management.

The Purposes of Budgeting

v Budgets define goals and objectives, and communicate plans to different parts of the
organization (responsibility centers)
v Budgets compel managers to plan
v Budgets give authority to budget managers to incur expenditure in their part of the
organization
v Budgets are a means of educating managers
v Budgets are a means of allocating an entity’s resources
v Budgets act as comparators for current performance (performance evaluation)
v Budgets may be used as targets to motivate managers to improve their performance
v Budgets facilitate awareness of how a department’s or manager’s activities will relate to those
of other departments or managers within the organization (coordination)
v Budgets uncover potential bottlenecks

Aspects of Budgeting
1. Managerial Aspect
Ø What managers and others do in the course of preparing or using budgets
2. Technical Aspect
Ø How budget numbers are calculated and assembled

The External Environment in Planning and Budgeting (CMA)

1. Industry
v Assessing the industry: nature, stage, dynamics, history
v Competitive position in the industry
v Competitive position of rivals
2. National environment
v Assessing domestic and international political risk
v Impact of globalization
v Risks of government expropriation and war
3. Wider macroenvironment
v Growth rate of the economy
v Interest rates
v Currency exchange rates
v Inflation and deflation

Budget Period
¨ Depends on management
¨ Annual, quarterly, monthly

Essentials of Effective Budgeting

1. Sound organizational structure
2. Valid bases: research and analysis
3. Acceptable or accepted by all levels of management

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 The Preparation of Budgets
Communicating details of the budget policy and budget
guidelines

Determining the limiting factor

Preparation of the sales budget

Initial preparation of budgets

Negotiation of budgets with superiors

Coordination and review of budgets

Final acceptance of budgets

Budget review

The Budget Committee

Ø The coordinating body in the preparation and administration of budgets

Authoritative Budgeting
§ Imposed budgets; Top-down budgeting
§ Superiors simply tell subordinates what their budgets will be

Participative Budgeting
§ All parties (top, middle, and lower level managers) agree about setting budget targets
§ Eliminates the excuse that the budgets are unrealistic or unattainable
§ Must be reviewed by higher management to prevent budgetary slack

The Right Atmosphere for Imposed Budgets

ü Newly-formed organizations
ü Very small businesses
ü Periods of economic hardship
ü Operational managers lack budgeting skills
ü Organizational units require precise coordination

The Right Atmosphere for Participative Budgets

ü Mature and large organizations
ü Decentralization is applied
ü Operational managers have sufficient budgeting skills
ü Managers of various operational units coordinate well with each other

Behavioral Aspects of Participative Budgeting

| Communication
| Motivation
| Realistic targets
| Goal congruence

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Difficulties in Participative Budgeting
| Pseudo-participation
| Challenges in coordination
| Additional training may be needed
| Budgetary slack

Budgetary Slack
§ Setting revenue or resource targets too low
§ Setting expenditure or outflow targets too high

The Budget Manual

Ø Usually prepared by the management accountant
Ø A collection of instructions governing the responsibilities of persons and the procedures, forms,
and records relating to the preparation and use of budgetary data (ACCA)

The Principal Budget Factor

Ø Key budget factor; Limiting factor
Ø The factor that limits an organization’s performance for a given period
Ø Starting point in budget preparation
Ø It is important to identify this so as to have a more realistic estimate of the budget figures

The Master Budget

1. Operating Budget – planned operations for the coming year
2. Cash Budget – anticipated sources and uses of cash
3. Capital Expenditure Budget – planned changes in property, plant, and equipment

The Operating Budgets

1. Sales Budget
2. Production Budget
3. Materials Purchases Budget
4. Direct Labor Budget
5. Factory Overhead Budget
6. Selling and Administrative Expense Budget

COMPUTATIONAL FORMATS
BUDGETED PRODUCTION: BUDGETED MATERIALS PURCHASES:
Budgeted sales xx Budgeted production xx
Add desired ending finished goods inventory xx x Quantity of materials required per unit of product xx
Total xx Total materials to be used xx
Less expected beginning finished goods inventory xx Add desired ending materials inventory. xx
Budgeted production xx Total xx
Less expected beginning materials inventory xx
Budgeted materials purchases xx
BUDGETED MERCHANDISE PURCHASES: CASH BUDGET:
Budgeted sales xx Cash balance, beginning xx
Add desired ending merchandise inventory xx Add receipts xx
Total xx Total cash available before current financing xx
Less expected beginning merchandise inventory xx Less disbursements xx
Excess (deficiency) of cash available over
Budgeted merchandise purchases xx disbursements xx
Financing xx
Cash balance, ending xx

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 OVERVIEW OF THE MASTER BUDGET
For A Typical Manufacturing Firm
OPERATING BUDGET

SALES
BUDGET

ENDING INVENTORY
BUDGET PRODUCTION
(Finished goods, Materials, BUDGET
Work-in-Process)

LABOR COST FACTORY

MATERIALS
BUDGET OVERHEAD
COST
COST

COST OF
GOODS SOLD
BUDGET
R&D/DESIGN
COSTS
BUDGET
MARKETING
BUDGETED COSTS
INCOME BUDGET
DISTRIBUTION
STATEMENT COSTS
BUDGET
CUSTOMER
SERVICE
COSTS
ADMINISTRATIVE
CAPITAL CASH BUDGETED
EXPENDITURES BUDGET BALANCE COSTS
BUDGET SHEET BUDGET

BUDGETED
STATEMENT
OF CASH
FLOWS

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Exercises

Theories:

1. Budgeting is
a. the process of creating a formal plan and translating goals into a quantitative format.
b. a technique for comparing actual costs with standard costs.
c. a technique for determining the cost of manufactured products.
d. a means of product costing that emphasizes activities as basic cost objects.

2. Which of the following statements is correct?

a. Budgets ensure goal congruence between superiors and subordinates.
b. Budgets define responsibility centers and promote communication and coordination among
organization segments.
c. Budgets foster the planning of operations and facilitate the fixing of blame for missed budget
predictions.
d. Budgets foster the planning of operations, provide a framework for performance evaluation,
and promote communication and coordination among organization segments.

3. Budgets are related to the following management functions, except

a. planning.
b. control.
c. performance evaluation.
d. None of the above.

4. It involves the forecasting of realizable results over a definite period or periods, the planning and
coordination of the various operations and functions of the business to attain realizable results,
and control of variations from the approved plan.
a. Cost control
b. Budgeting
c. Internal control
d. Vouching

5. Which of the following statements regarding budgeting is incorrect?

a. Planning and control are the essential features of the budgeting process.
b. Capital expenditures budget shows the availability of idle cash for investment.
c. Budgeting provides a measuring device to which subsequent performances are compared and
evaluated.
d. Budget preparation is not the sole responsibility of any one organizational segment and is
prepared by combining the efforts of many individuals.

6. Which of the following is not a primary purpose of preparing a budget?

a. To communicate the company’s plans throughout the entire business organization
b. To provide a basis for comparison of actual performance
c. To control revenues and expenses during a given period
d. To make sure that the company expands its operations

7. Which of the following is not considered to be a benefit of participative budgeting?

a. Participative budgeting results in greater support of the organization because individuals at all
levels of the organization are recognized as being part of the team.
b. Participative budgeting involves those most directly affected.
c. Top management need not be concerned with the overall profitability of the current operations
because lower level managers set the final target for the budget.
d. Participative budgeting improves accountability because managers are held responsible for
reaching their goals, such that they cannot shift their responsibility by blaming the unrealistic
goals demanded by the budget.

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8. A budget is a control technique that, among other things, establishes a performance standard.
However, a natural reaction of a manager whose efforts are to be evaluated is to incorporate
slack into the budget. Which of the following about budgetary slack is incorrect?
a. Budgetary slack can best be described as the planned overestimation of budgeted expenses.
b. The use of budgetary slack prohibits the use of the budget to control subordinate performance.
c. From the perspective of corporate management, the use of budgetary slack increases the
likelihood of inefficient resource allocation.
d. Budgetary slack eliminates the likelihood that a manager will receive the personal rewards that
follow from meeting the expectations of superiors.

9. The master budget

a. shows a comparison of forecasted and actual results.
b. is composed of the operating and financial budgets.
c. reflects only those costs controllable by the individual manager.
d. is the budget of the master of the firm.

10. In budgeting, a planning calendar is the

a. schedule of dates at which goals are to be met.
b. calendar year covered by the budget.
c. schedule of activities for the development and adoption of the budget.
d. schedule of dates when new products should be launched in the market.

11. A budget manual describes how a budget is to be prepared. It usually includes a budget planning
calendar and
a. the company policies regarding the authorization of transactions.
b. documentation of the accounting system software.
c. distribution instructions for budget schedules.
d. a chart of accounts.

12. The budget element (s) included in the financial budget process are the following, except the
a. budgeted balance sheet.
b. capital budget.
c. cash budget and budgeted statement of cash flows.
d. budget variance.

13. Following are parts of the operating budget, except

a. sales budget.
b. materials cost budget.
c. capital budget.
d. production budget.

14. The starting point in preparing a comprehensive budget is

a. the cash budget.
b. the budgeted income statement.
c. the sales forecast.
d. the production budget

15. Which of the following cannot be used to improve the estimates of sales volume for a master
budget?
a. Management analysis and opinions
b. Statistical analysis including regression analysis and econometric studies
c. Estimation from previous sales volume and market history
d. None of the above

16. In budgeting process, top management should

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 a. limit their involvement because they lack the detailed knowledge of the daily operations.
b. be involved only in the approval process.
c. separate the budgeting process and the business planning process into two separate process.
d. be involved, including using the budget process to communicate goals.

17. A strategic budget,

a. is a short-range management tool.
b. describes the long-term position, goals, and objectives of an organization within its
environment.
c. involves evaluating specific long-term investment decisions.
d. is a short-range consideration related to liquidity.

18. When developing a budget, an external factor to consider in the planning process is
a. the activities of competitors.
b. development of new product.
c. the implementation of employees’ retirement plan.
d. a change in management.

19. A budget can be many tools in one. It can be used for planning, communications, motivation, and
control. For the budgetary process to serve effectively as a control tool,
a. the organization must have a budget director.
b. a budget committee must be organized.
c. forecasting procedures must be developed.
d. the budgeting and accounting system must be integrated or synchronized with the
organizational structure.

20. In developing an annual master budget, individual budget schedules are prepared. The budget
schedule that would provide the necessary input data for the direct labor budget would be the
a. schedule of cash receipts and disbursements.
b. sales forecast.
c. production budget.
d. raw materials purchases budget.

21. Among the components of the operating budget is the selling and administrative expenses budget,
which
a. is usually optional.
b. is composed only of fixed costs.
c. is difficult to allocate by month and therefore presented as a lump sum figure for the whole
year.
d. should be detailed so that the key assumptions can be better understood.

22. One component of the financial budget is the cash budget. It is prepared periodically to facilitate
cash planning and control. Its purpose is to anticipate cash needs while minimizing the amount
of idle cash. The cash receipts section of the budget includes all sources of cash, among which is
a. depreciation. c. extinguishment of debt.
b. factory supplies. d. loan proceeds.

23. The budget preparation process typically begins with the sales budget and continues through the
preparation of the budgeted financial statements. The last budget schedule prepared before the
financial statements
a. taxes and licenses budget.
b. cash budget.
c. selling and administrative expenses budget.
d. cost of goods sold budget.

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24. When a company prepares its first draft of its budgeted income statement, management must
evaluate whether projected earnings would meet company objectives. This evaluation is based
on factors such as the following except
a. desired earnings per share.
b. average earnings for other firms in the industry.
c. desired price earnings ratio.
d. desired internal rate of return.

25. A continuous or rolling budget

a. works best for a firm that can reliably forecast events a year or more in the future.
b. presents the budgeted amounts for a range of activities so that the amounts can be adjusted
for changes in activity.
c. drops the current month or quarter and adds a future month or quarter as the current month
or quarter is completed.
d. assumes the continuous improvement of products and processes.

26. Which of the following statements about flexible budgets is false?

A flexible budget
a. is a series of budgets prepared for various levels of activity.
b. accommodates changes in activity levels so that actual results can be compared with
meaningful budget amounts.
c. is used to evaluate capacity use.
d. assumes that total fixed costs and unit variable costs are constant within the relevant range.

27. Zero-based budgeting (ZBB) is a budgetary process

a. in which the budget is largely based on the expenditures of the previous year.
b. that presents planned activities for a period of time, but does not present a firm commitment.
c. where the budget variance is always equal to zero.
d. that divides the activities of individual responsibility centers into a series of packages that are
prioritized after being evaluated from a cost-benefit perspective.

28. Unlike in zero-based budgeting, incremental budgeting

a. requires a manager to justify the entire budget for each year.
b. eliminates the need to review all functions periodically to obtain optimum se of resources.
c. simply adjusts the current year’s budget to allow for changes planned for the coming year.
d. starts from a base of zero.

29. A life-cycle budget is a budgeting tool or process

a. which summarizes all of a company’s budgets and plans.
b. in which estimates of revenues and expenses are prepared for each product beginning with
the product’s research and development phase and traced through its customer support
phase.
c. which emphasizes the cost of activities.
d. which requires each manager to justify his/her unit’s entire budget each budget period.

30. In this budgeting process, the budget is based not on the existing system, but on changes or
improvements that are to be made. It assumes the continuous improvement of products and
processes.
a. Zenkai Budgeting
b. Kaizen Budgeting
c. Keizan Budgeting
d. Zankei Budgeting

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Problem 1: Comprehensive

Kayud Engineering produces two products, Diligence and Perseverance. The budget for the forthcoming
year to 31 March 2022 is to be prepared. Expectations for the forthcoming year include the following.

(a) Beginning Balances

KAYUD ENGINEERING
STATEMENT OF FINANCIAL POSITION AS AT 1 APRIL 2021
ASSETS PhP PhP
Non-current assets
Land and buildings 45,000
Plant and equipment at cost 187,000
Less accumulated depreciation 75,000
112,000
Current assets
Raw materials 7,650
Finished goods 23,600
Receivables 19,500
Cash 4,300
55,050
212,050
EQUITY AND LIABILITIES
Capital and assets
Share capital 150,000
Accumulated profits (Retained Earnings) 55,250
205,250
Current liabilities
Payables 6,800
212,050

(b) Finished products

The sales director has estimated the following.

Diligence Perseverance
(i) Demand for the company's products 4,500 units 4,000 units
(ii) Selling price per unit P52 P54
(iii) Closing inventory of finished products at 31 March 2022 400 units 1,200 units
(iv) Opening inventory of finished products at 1 April 2021 900 units 200 units
(v) Unit cost of this opening inventory P20 P28
(vi) Amount of plant capacity required for each unit of product
Machining 15 min 24 min
Assembling 12 min 18 min
(vii) Raw material content per unit of each product
Material A 1.5 kilos 0.5 kilos
Material B 2.0 kilos 4.0 kilos
(viii) Direct labour hours required per unit of each product 6 hours 9 hours
Finished goods are valued on a FIFO basis at full production cost.

(c) Raw materials

Material A Material B
(i) Closing inventory requirement in kilos at 31 March 2022 600 1,000
(ii) Opening inventory at 1 April 2021 in kilos 1,100 6,000
(iii) Budgeted cost of raw materials per kilo P1.50 P1.00
Actual costs per kilo of opening inventories are as budgeted cost for the coming year.

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(d) Direct labor
The standard wage rate of direct labor is P1.60 per hour.

(e) Production overhead

Production overhead is absorbed on the basis of machining hours, with separate absorption rates for
each department. The following overheads are anticipated in the production cost center budgets.
Machining Dept. Assembling Dept.
PhP PhP
Supervisors' salaries 10,000 9,130
Power 4,400 2,000
Maintenance and running costs 2,200 2,000
Consumables 3,400 500
General expenses 19,600 5,000
39,600 18,630

Depreciation is taken at 5% straight line on plant and equipment. A machine costing the company
P20,000 is due to be installed on 1 October 2021 in the machining department, which already has
machinery installed to the value of P100,000 (at cost). Land worth P180,000 is to be acquired in
December 2021.

(f) Selling and administration expenses

PhP
Sales commissions and salaries 14,300
Travelling and distribution 3,500
Office salaries 10,100
General administration expenses 2,500
30,400

(g) There is no opening or closing work in progress and inflation should be ignored.

(h) Budgeted cash flows are as follows.

Quarter 1 Quarter 2 Quarter 3 Quarter 4
Receipts from customers 99,500 120,000 134,500 100,000
Payments:
Materials 7,000 9,000 10,000 5,000
Wages 33,000 20,000 11,000 15,000
Other costs and expenses 10,000 10,000 25,000 5,000

Required: Prepare the following for the year ended 31 March 2022 for Kayud Engineering
Ltd.
(a) Sales budget
(b) Production budget (in quantities)
(c) Direct materials usage budget
(d) Direct labor budget
(e) Factory overhead budget
(f) Computation of the factory cost per unit for each product
(g) Direct materials purchases budget
(h) Cost of goods sold budget
(i) Cash budget
(j) A budgeted statement of financial performance and budgeted statement of financial position

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Short Problems:

1. Ernie Trading Co. budgeted merchandise purchases of 40,000 units next month. The expected
beginning inventory is 12,000 units and the desired inventory at the end of next month is
15,000 units. Budgeted sales in units for next month is
a. 37,000. c. 55,000.
b. 43,000. d. 52,000

2. Edil Producers, Inc. will start its commercial operations on January 1, 200A. The sales forecast
per the sales management’s estimates for its first year of operations is 50,000 units. However,
the production manager estimated that only 80% of the sales forecast can be produced with
the available workforce and equipment. The product will be sold for P20 per unit. The budgeted
peso sales for Edil Producers, Inc.’s initial year of operations is
a. P800,000. c. P50,000.
b. P1,000,000. d. P40,000.

3. Hershey Company has budgeted sales of 90,000 units in January; 120,000 units in February; and
180,000 units in March. The company has 20,000 units on hand on January 1. If Hershey
Company requires an ending inventory of finished goods equal to 20% of the following month’s
sales, the budgeted production during February should be
a. 96,000 c. 120,000
b. 108,000 d. 132,000

4. Tasyo Company has budgeted sales of 90,000 units in January; 120,000 units in February; and
180,000 units in March. The company has 20,000 units of finished goods and 35,000 pieces of
materials on hand on January 1. Each unit of product requires 5 pieces of materials. The desired
inventory of finished goods and materials at the end of each month is as follows:
Finished goods – 20% of next month’s sales
Materials - 25% of next month’s production needs
How many pieces of materials should the company plan to purchase in January?
a. 600,000 c. 468,000
b. 567,000 d. 552,500

THE NEXT TWO ITEMS ARE BASED ON THE FOLLOWING INFORMATION:

Nicely Wyn Corporation has the following budgeted production for four months:
April 50,000 June 45,000
May 40,000 July 60,000

Each unit of product requires 2 pieces of raw materials. The desired ending raw materials inventory for
each month 130% of the following month’s production needs, plus 2,000 pieces. (The April 1
inventory meets this requirement.)

The product is processed in two departments (Dept. A and Dept. B) and the direct labor standards are
as follows:
Hours per Unit Rate per Hour Labor Cost per Unit
Department A 6 P30 P180
Department B 2 40 80

5. What is the budgeted purchases of raw materials in June?

a. 51,000 c. 120,000
b. 84,000 d. 129,000

6. What is the budgeted direct labor cost for the month of May?
a. P13,000,000 c. P10,400,000
b. P11,700,000 d. P7,200,000

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7. Fame Company has the following budget formula for factory overhead costs:
FOH = P5,000,000 per month + P300 per unit of product
If the company plans to produce 50,000 units in January, how much is the budgeted factory
overhead cost?
a. P20,000,000 c. P5,000,000
b. P15,000,000 d. P5,050,300

8. Bugnot Corporation’s budget includes the following data:

Budgeted sales 7,200
Inventories: Beginning Ending
Finished goods 300 400
Work-in-process in equivalent units 60 160

How many equivalent units should Bugnot Corporation plan to produce during the budget period?
a. 7,300 c. 7,000
b. 7,400 d. 7,200

9. Annely Dolls, Inc. manufacturers a taking doll which has the following production cost data for
each unit of doll:
Materials: Voice box assembly purchased from an outside P100
Other materials 400
Labor – 8 hours at P30 per hour 240
Variable factory overhead (8 hours @ P20 per hour) 160
Total variable cost per doll P900
Fixed factory overhead – P10,000,000 per month

Budgeted sales of dolls for the last 3 months of the year are as follows:
October 30,000
November 40,000
December 70,000
As much as possible, the company does not want to stock finished goods inventory, so it produces
exactly the same quantity as the budgeted sales each month. However, in order to avoid
stock-out problems in December, it plans to have a December 1 inventory balance of 30%
of December’s budgeted sales. What is the budgeted production cost in November?
a. P54,900,000 c. P46,000,000
b. P56,800,000 d. P64,900,000

THE NEXT FOUR ITEMS ARE BASED ON THE FOLLOWING INFORMATION:

Bags, Inc. manufacturers leather bags with 3 zipper-type pockets. The company outsources the zippers
at P8 per unit. Each bag requires 5 direct labor hours to produce at a rate of P10 per hour.
Budgeted sales of bags for the first quarter of the year and the first month of the following
quarter are as follows:
January 900 units March 1,500 units
February 1,000 units April 1,800 units

Inventory data are as follows:

January 1: Leather bags 360
Zipper 1,620
End of each month:
Leather bags – 40% of the following month’s budgeted sales
Zipper – 60% of the following month’s production requirement

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10. What is the budgeted production of leather bags for the first quarter?
a. 3,760 c. 4,400
b. 3,040 d. 3,400

11. What is the budgeted purchases of zipper for February?

a. 2,844 c. 4,356
b. 1,956 d. 3,600

12. What is the total budgeted zipper and labor costs for the month of March?
a. P55,080 c. P122,472
b. P29,160 d. P119,880

13. Assume that on the average, a full-time factory worker works 188 hours per month and no
overtime is allowed, how many full-time equivalent factory workers are needed to produce the
budgeted output of leather bags in January?
a. 5 c. 100
b. 25 d. 23.94

THE NEXT TWO ITEMS ARE BASED ON THE FOLLOWING INFORMATION:

Cudal Company prepared the following figures for its only product as a basis for its 200B budget:
Budgeted sales 240,000 units
Selling price P5
Required materials per unit of product 2 pieces
Materials beginning inventory 20,000 pieces
Materials ending inventory 24,000 pieces
Purchase price per piece of material P3
Finished goods beginning inventory 15,000 units
Finished goods ending inventory 18,000 units
Direct labors hours,per 1,000 units of product 60 hours
Direct labor rate per hour P30
Variable factory overhead rate per hour P10
Fixed factory overhead P300,000

14. The budgeted peso amount of materials purchases is

a. P1,458,000. c. P1,470,000.
b. P2,450,000. d. P741,000.

15. The total budgeted manufacturing cost for 200B is

a. P2,341,200 c. P2,041,200
b. P884,658 d. P2,353,200

16. Gargalicana Company is preparing its cash budget for next year. Budgeted sales for four months
are as follows:
April P80,000 June 240,000
May 160,000 July 80,000
Fifty percent of total sales is cash sales. The balance, or the credit sales, is collected in the
following manner:
70% in the month following the sale
20% in the second month following the sale
10% in the third month following the sale
How much is the budgeted cash receipts in July?
a. P144,000
b. P104,000
c. P288,000
d. P208,000

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17. All sales of Paige Company are on count. Budgeted sales for the first quarter of 200B are:
January P96,000
February 168,800
March 158,400
Based on the company’s collection experience, 60% of the sales is collected in the month after
the sale, 36% is collected in the second month following the sale, and the balance is
uncollectible. The budgeted cash receipts for March is
a. P118,368. c. P155,808.
b. P158,304. d. P135,840.

18. Oyco Company’s budget committee came up with the company’s budgeted sales for the first five
months of the budget year 200B:
January P 76,000
February 52,000
March 56,000
April 64,000
May 68,000
Ninety percent of total sales is on credit, Historically, Oyco Company has had no significant bad
debt experience with its customers, and the receivables have been collected in the following
manner:
40% in the month of sale
30% in the month following the sale
25% in the second month following the sale
5% in the third month following the sale
However, due to the determination economic conditions brought about by the continuous
increases in oil prices and other external factors, the budget committee decided that the cash
forecast should include a provision for bad debts of 2% on credit sales beginning with the sales
for the month of April.

Because of this change in collection policy, the total cash inflow from April sales will be
a. P62,720. c. P62,848.
b. P56,448. d. P64,000.

Module 2 ACCTG202 Page 16 of 16