Budgeting

MODULE 8 - BUDGETING A. To provide a basis for comparison of actual performance

B. To communicate the companys plans throughout the entire business organization
THEORIES: C. To control income and expenditure in a particular period.
Basic Concepts D. To make sure the company expands its operations.
1. The concept of management by exception refers to managements consideration of
A. only those items that vary materially from expectations. 5. Which of the following does not contribute to an effective budgeting?
B. only rare events. A. Top management is involved in budgeting.
C. samples selected at random. B. To give each manager a free hand in the preparation of the budget, the data within the master
D. only significant unfavorable deviations. budget are flexible.
C. The organization is divided into responsibility units.
8. A formal written statement of managements plans for the future, packaged in financial terms, is a: D. There is communication of results.
A. Responsibility report. C. Cost of production report.
B. Performance report. D. Budget. 6. The budgets that are based on a very high levels of performance, like expected costs using ideal
standards,
A. assist in planning the operations of the company
2. Budgets are related to which of the following management functions? B. stimulate people to perform better than they ordinarily would
A. Planning C. Control C. are helpful in evaluating the performance of managers
B. Performance evaluation D. all of these D. can lead to low levels of performance

22. Budgeting supports the planning process by encouraging all of the following activities except: 7. Which of the following statements is incorrect?
A. Requiring all organizational units to establish their goals for the coming period. A. An imposed budget is the same as a participative budget.
B. Increasing the motivation of managers and employees by providing agreed-upon expectations. B. Preparation of the budget would be the responsibility of each responsibility unit.
C. Improving overall decision making by considering all viewpoints, options, and cost control programs. C. Top managements support is necessary to promote budget participation.
D. The top management should review and approve each responsibility units budget.
D. Directing and coordinating operations during the period.
9. The primary role of the budget director and the budgeting department is to
3. Which of the following advantages does a budget mostly provide? A. Settle disputes among operating executives during the development of the annual operating
A. Coordination is increased.
B. Planning is emphasized. plan.
C. Communication is continuous. B. Develop the annual profit plan by selecting the alternatives to be adopted form the suggestions
D. Comparison of actual versus budgeted data. submitted by the various operating segments.
C. Compile the budget and manage the budget process.
24. Which of the following is NOT an advantage of budgeting? D. Justify the budget to the corporate planning committee of the board of directors.
A. It forces managers to plan.
B. It provides resource information that can be used to improve decision making. 10. The primary variable affecting active participation and commitment to the budget and the control
C. It aids in the use of resources and employees by setting a benchmark that can be used for the subsequent system is
evaluation of performance. A. Management efforts to achieve the budget rather than optimize results.
D. It provides organizational independence. B. The rigid adherence to the budget without recognizing changing conditions.
C. Top management involvement in support of the budget.
4. Which of the following is least likely a reason why a company prepares its budget?
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D. The opportunity budgeting gives to risk-taker managers for department growth. A. Forecasting. C. Continuous budgeting.
B. Zero-based budgeting. D. Program budgeting.
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. 38. Which of the following is a contemporary approach to budgeting?
B. Zero-based budgeting. D. Calendar budgeting. A. incremental approach C. baseline approach
B. zero-based approach D. both a and b are true
35. The method of budgeting which adds one months budget to the end of the plan when the current months budget is
dropped from the plan refers to 51. Zero-base budgeting requires managers to
A. Long-term budget C. Incremental budget A. Justify expenditures that are increases over the prior periods budgeted amount.
B. Operations budget D. Continuous budget B. Justify all expenditures, not just increases over last years amount.
C. Maintain a full-year budget intact at all times.
27. A continuous budget D. Maintain a budget with zero increases over the prior period.
A. is a budget that is revised monthly or quarterly.
B. is a medium term plan that consists of more than 2 years projections. 13. Zero-based budgeting:
C. is appropriate only for use of a not-for-profit entity. A. involves the review of changes made to an organizations original budget.
D. works best for an entity that can reliably forecast events a year or more into the future. B. does not provide a summary of annual projections.
37. Incremental budgeting refers to C. involves the review of each cost component from a cost/benefit perspective.
A. line-by-line approval of expenditures D. emphasizes the relationship of effort to projected annual revenues.
B. setting budget allowances based on prior year expenditures
C. requiring top management approval of increases in budgets 18. A systematized approach known as zero-based budgeting:
D. using incremental revenues and costs in budgeting A. Classifies the budget by the prior years activity and estimates the benefits arising from each
activity.
49. A budget plan for annual fixed costs that arises from top management decisions directly reflecting corporate policy. B. Commence with either the current level of spending or projected whichever is lower.
A. Flexible budget. C. Discretionary budget. C. Presents planned activities for a period of time but does not present a firm commitment.
B. Static budget. D. Program budget. D. Divides the activities of individual responsibility centers into a series of packages that are
prioritized.
36. The term decision package relates to
A. comprehensive budgeting C. program budgeting 20. Which of the following statements about Zero-based budgeting is incorrect?
B. zero-based budgeting D. line budgeting A. All activities in the company are organized into break-up units called packages.
B. All costs have to be justified every budgeting period.
41. The budget approach that is more relevant when the continuance of an activity or operation must be justified on the C. The process is not time consuming since justification of costs can be done as a routine matter.
basis of its need or usefulness to the organization. D. Zero-based budgeting includes variable costs only.
A. the incremental approach C. the baseline approach
34. Budgeting expenditures by purpose is called
B. the zero-based approach D. both a and b are true A. program budgeting C. zero-based budgeting
B. line budgeting D. flexible budgeting
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: 28. A static budget is not appropriate in evaluating a manager's effectiveness if a company has
A. substantial fixed costs.
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B. substantial variable costs. D. Master budget is based on one specific level of production and a flexible budget can be prepared
C. planned activity levels that match actual activity levels. for any production level within a relevant range
D. no variable costs.

45. Flexible budgeting is a reporting system wherein the 47. Which of the following is a difference between a static budget and a flexible budgets?
A. A flexible budget includes only variable costs; a static budget includes only fixed costs.
A. Budget standards may be adjusted at managements discretion. B. A flexible budget includes all costs, a static budget includes only fixed costs.
B. Planned level of activity is adjusted to the actual level of activity before the performance report is prepared. C. A flexible budget gives different allowances for different levels of activity, a static budget does
C. Reporting dates vary according to the managerial levels of the users. not.
D. Packages of activities vary from period to period. D. There is no difference between the two.

17. A system that classifies budget requests by activity and estimates the benefits arising from each
15. A budget that presents the plan for a range of activity so that the plan can be adjusted for changes in activity levels is
activity:
referred to as:
A. Incremental budgeting system.
A. Zero-based budgeting.
B. Static budgeting system.
B. Continuous budgeting.
C. Program planning and budgeting system.
C. Flexible budgeting.
D. Participative system.
D. Program planning and budgeting system.
21. A budget that identifies revenues and costs with an individual controlling their incurrence is
16. A flexible budget is A. Master budget C. Product budget
A. one that can be changed whenever a manager so desires B. Responsibility budget D. None of the above
B. adjusted to reflect expected costs at the actual level of activity
C. one that uses the formula total costs = cost per unit x units produced
D. the same as a continuous budget 25. The difference between an individual's submitted budget projection and his or her best estimate of
the item being projected is an example of
A. padding the budget
26. A series of budgets for varying levels of activity is a: B. adhering to zero-based budgeting assumptions
A. Variable cost budget. C. Master budget. C. creating budgetary slack
B. Flexible budget. D. Zero-based budget. D. being incongruent with participative budgeting
48. If a company wishes to establish a factory overhead budget system in which estimated costs can be derived directly 43. Budget slack is a condition in which
from estimates of activity levels, it should prepare a A. Demand is low at various times of the year
A. flexible budget. C. Discretionary budget. B. Excess machine capacity exists in some areas of the plant
B. Program budget. D. Manufacturing budget. C. There is an intentional overestimate of expenses or an underestimate of revenues
D. Managers grant favored employees extra time-off
46. The basic difference between a master budget and a flexible budget is that a
A. Flexible budget considers only variable costs but a master budget considers all costs. 39. The procedure for setting profit objectives in which the determination of profit objectives is
B. Flexible budget allows management latitude in meeting goals whereas a master budget is based on a fixed subordinated to the planning, and the objectives emerge as the product of the planning itself is the
standard. A. a priori method C. practical method
C. Master budget is for an entire production facility but a flexible budget is applicable to single department only. B. theoretical method D. a posteriori method

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40. The procedure for setting profit objectives in which management specifies a given rate of return that it seeks to realize 2. Sales Budget
in the long run by means of planning toward that end is the 3. Selling and Administrative Budget
A. a priori method C. pragmatic method 4. Budgeted Income Statement
B. theoretical method D. ad hoc method A. 1, 2, 3, 4 C. 2, 3, 4, 1
B 2, 3, 1, 4 D. 2, 4, 1, 3
50. Budgeting process in which information flows top down and bottom up is referred to as:
A. Continuous budgeting. C. Perpetual budgeting 29. In estimating the sales volume for a master budget, which of the following techniques may be used to
B. Participative budgeting D. Joint budgeting improve the projections?
A. Brainstorming.
42. Which of the following is not a potential problem with participative budgeting? B. Statistical analysis.
A. setting standards that are either too high or too low C. Estimating from previous sales volume.
B. padding the budget D. All of these are useful.
C. build slack into the budget 30. Using the concept of expected value in sales forecasting means that the sales forecast to be used is
D. all of the above are potential problems A. developed using the indicator method
B. the sum of the sales expected by individual managers
33. The ideal financial planning process would be C. based on expected selling prices of the products
A. top-down planning. D. based on probabilities
B. bottom-up planning.
C. a combination of top-down and bottom-up planning. 31. Several sales forecasts are available from different sources and the managers have good ideas about
D. None of the above their likelihoods. This situation call for the use of
A. the expected value concept C. indicator methods
44. A common starting point in the budgeting process is B. historical analysis D. a scatter diagram
A. expected future net income. C. to motivate the sales force.
B. past performance. D. a clean slate, with no expectations. 53. An overly optimistic sales budget may result in
A. increases in selling prices late in the year.
57. Which one of the following is an external factor that would need to be considered in forming an initial budget proposal? B. insufficient inventories.
A. changes in product design C. increased sales during the year.
B. introduction of a new product D. excessive inventories.
C. competitors' actions
D. adoption of a new manufacturing process 56. Which of the following budgets provides the data for the preparation of the direct labor cost budget?
A. Direct materials purchase budget. C. Sales budget.
14. Operating budgets are B. Cash budget. D. Production budget.
A. a forecast of expected operating expenses.
B. a forecast of operating expenses and related revenues. 55. The increased use of automation and less use of the work force in companies has caused a trend
towards an increase in
C. a forecast of units of production. A. both variable and fixed costs.
D. concerned with the income-generating activities of a firm. B. fixed costs and a decrease in variable costs.
C. variable costs and a decrease in fixed costs.
54. What is the proper preparation sequencing of the following budgets? D. variable costs and no change in fixed costs.
1. Budgeted Balance Sheet
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32. In preparing a cash budget, which of the following is normally the starting point for projecting cash requirements? to have 50% of next months sales needs on hand at the end of a month. If Calypso has an average
A. Fixed assets. C. Accounts receivable. gross profit of 40%, what are the February 28 purchases?
B. Sales. D. Inventories. A. P465,000 C. P775,000
B. P310,000 D. P428,000
52. Recognition of the many uncertainties in budgeting is exemplified by companies normally
A. forecasting sales iv
.Blue Company budgeted purchases of P100,000. Cost of sales was P120,000 and the desired ending
B. establishing minimum required cash balances inventory was P42,000. The beginning inventory was
C. forecasting only fixed costs A. P20,000 C. P42,000
D. omitting expected dividend payments from budgeted disbursements B. P32,000 D. P62,000

19. Which of the following statements is True? v

.The payment schedule of purchases made on account is: 60% in the time period of purchase, 30% in
A. Under zero-based budgeting, a manager is required to start at zero budget levels each period, as if the programs the following time period, and 10% in the subsequent time period. Total credit purchases were
involved were being initiated for the first time. P200,000 in May, and P100,000 in June. Total payments on credit purchases were P140,000 in June.
B. The primary purpose of the cash budget is to show the expected cash balance at the end of the budget period. What were the credit purchases in the month of April?
C. Budget data are generally prepared by top management and distributed downward in an organization. A. P200,000 C. P145,000
D. The budget committee is responsible for preparing detailed budget figures in an organization. B. P100,000 D. P215,000

23. Which of the following is a valid statement? Production budget

A. Responsibility budget identifies revenue and costs with the individual responsible for their incurrence. vi
.Montalban Companys sales budget shows the following expected sales for the following year:
B. The best way to establish budget figures is to use last years actual cost and activity data as this years budget Quarter Units
estimates.
First 120,000
C. A sales budget and a sales forecast are the same thing.
Second 160,000
D. The primary purpose of the cash budget is to show the expected cash balance at the end of the budget period.
Third 90,000
Fourth 110,000
PROBLEMS: Total 480,000
Cost estimation formula
i The inventory at December 31 of the prior year was budgeted at 36,000 units. The quantity of
.Management has prepared a graph showing the total costs of operating branch warehouses throughout the country. The finished goods inventory at the end of each quarter is to equal 30% of the next quarters budgeted
cost line crosses the vertical axis at P400,000. The total cost of operating one branch is P650,000. The total cost of sales of units.
operating ten branches is P2,900,000. For purposes of preparing a flexible budget based on the number of branch How much should the production budget show for units to be produced during the first quarter?
warehouses in operation, what formula would be used to determine budgeted costs at various levels of activity? A. 48,000 C. 132,000
A. Y = P400,000 + P250,000X C. Y = P650,000 + P400,000X B. 96,000 D. 144,000
B. Y = P400,000 + P290,000X D. Y = P650,000 + P250,000X
vii
.Lorie Company plans to sell 400,000 units of finished product in July an anticipates a growth rate in
Sales budget
sales of 5% per month. The desired monthly ending inventory in units of finished product is 80% of
Purchases budget merchandising concern
the next months estimated sales.
ii
.PTO Company desires an ending inventory of P140,000. It expects sales of P800,000 and has a beginning inventory of
There are 300,000 finished units in the inventory on June 30. Each unit of finished product requires
P130,000. Cost of sales is 65% of sales. Budgeted purchases are
four pounds of direct materials at a cost of P2.50 per pound. There are 800,000 pounds of direct
A. P 530,000 C. P 810,000
materials in the inventory on June 30.
B. P 790,000 D. P1,070,000
How many units should be produced for the three-month period ending September 30?
iii A. 1,260,000 C. 1,331,440
.Calypso Co. has projected sales to be P600,000 in January, P750,000 in February, and P800,000 in March. Calypso wants
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B. 1,328,000 D. 1,424,050 Finished goods 15,000 units

Raw materials 21,000 kg.
Ending inventory budget Budgeted unit sales 18,000 units
viii
.If the required direct materials purchases are 8,000 pounds and the direct materials required for production is three times Planned ending inventory
the direct materials purchases, and the beginning direct materials are three and a half times the direct materials Finished goods 11,400 units
purchases, what are the desired ending direct material in pounds? Raw materials 24,400 kg.
A. 20,000 C. 12,000 During the production process, it is usually found that 10% of production units are scrapped as defective
B. 4,000 D. 32,000 and this loss occurs after the raw materials have been placed in process.
How many kilograms of raw materials should be purchased in June?
Raw materials usage budget A. 89,800 C. 96,000
ix
.Minerva Company sells a single product. Budgeted sales for the year are anticipated to be 640,000 units. The estimated B. 98,440 D. 99,400
beginning and ending finished goods inventory are 108,000 and 90,000, respectively. A production of one unit requires
the following materials:
xiii
.Violet Company manufactures a single product. It keeps its inventory of finished goods at twice the
Material LL 0.50 lb. @ P0.60 coming months budgeted sales, inventory of raw materials at 150% of the coming months budgeted
Material MM 1.00 lb. @ P1.70 production requirements. Each unit of product requires two pounds of materials. The production
Material NN 1.20 lb. @ P1.00 budgets in units consist of the following:.
What are the respective peso amounts of each material to be used in production during the year? May 1,000
Material LL Material MM Material NN June 1,200
July 1,300
A. P181,200 P1,026,800 P724,800
August 1,600
B. P181,200 P1,026,800 P746,400
Raw material purchases in June would be
C. P186,600 P1,057,400 P746,400
A. 2,600 pounds C. 2,400 pounds
D. P186,600 P1,057,400 P724,800
B. 1,800 pounds D. 2,700 pounds
Raw materials purchases budget xiv
x .Sales Company is budgeting sales of 300,000 units of its only product for the coming year. Production
.If there were 30,000 pounds of raw material on hand on January 1, 60,000 pounds are desired for inventory at December of one unit of product requires three pounds of Material Q and 2 pounds of Material L. Inventory
31, and 180,000 pounds are required for annual production, how many pounds of raw material should be purchased units at the beginning of the year are:
during the year?
Actual, Jan. 1 Budgeted, Dec 31
A. 150,000 pounds C. 120,000 pounds
B. 240,000 pounds D. 210,000 pounds Finished goods 60,000 50,000
Material Q 80,000 60,000
.Silver Bowl Company manufactures a single product. It keeps its inventory of finished goods at 75% the coming months
xi Material L 88,000 96,000
budgeted sales. It also keeps its inventory of raw materials at 50% of the coming months budgeted production. Each unit How many pounds of Material Q is Sales planning to buy during the coming year?
of product requires two pounds of materials. The production budget is, in units: May, 1,000; June, 1,200; July, 1,300; A. 850,000 C. 862,000
august, 1,600. Raw material purchases in July would be B. 890,000 D. 908,000
A. 1,525 pounds C. 2,550 pounds
xv
B. 2,900 pounds D. 3,050 pounds .Strama Company prepares its budgets on annual basis. The following beginning and ending inventory
unit levels are planned for the fiscal year of June 1, 2006 through May 31, 2007.
xii
.Each unit of finished product uses 6 kilograms of raw materials. The production and inventory budgets for May 2007 are as June 1, 2006 May 31, 2007
follows: Raw material* 40,000 50,000
Beginning Inventory: Work-in-process 10,000 10,000

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Finished goods 80,000 50,000 were P57,000. What were the credit sales in July?
*Two (2) units of raw material are needed to produce each unit of finished product. A. P90,000 C. P45,000
If 500,000 finished units were to be manufactured during the 2006-2007 fiscal year by Strama Company, the units of B. P30,000 D. P32,000
raw material needed to be purchased would be
A. 1,000,000 units C. 1,020,000 units Cash collections
xx
B. 1,010,000 units D. 990,000 units .Obligacion Company has P299,000 in accounts receivable on January 1, 2006. Budgeted sales for
January are P860,000. Obligacion expects to sell 20% of its merchandise for cash. Of the remaining
xvi
.Diliman Corporation includes the following quarterly budget for production: sales, 75% are expected to be collected in the month of sale and the remainder the following month.
Quarter Production The January cash collections from sales are:
First 60,000 units A. P815,000 C. P471,000
Second 45,000 units B. P691,000 D. P987,000
Third 40,000 units xxi
Fourth 65,000 units .Adel Company has the following sales forecasts for the selected three-month period in 2007:
Each unit of product requires 2.5 kilograms of direct materials. The company begins each quarter with inventory of Month Sales
direct materials equal to 25 percent of the total quarters material requirements. April P12,000
What is the budgeted purchases of materials for the second quarter? May 7,000
A. 113,750 C. 46,250 June 8,000
B. 109,375 D. 112,500 Seventy percent of sales are collected in the month of the sale, and the remainder is collected in the
following month.
Indirect labor costs
xvii Accounts receivable balance (April 1, 2007) P10,000
.Namuco, Inc. uses flexible budgeting for cost control. During the month of September, Namuco, Inc. produced 14,500
units of finished goods with indirect labor costs of P25,375. Its annual master budget reflects an indirect labor costs, a Cash balance (April 1, 2007) 5,000
variable cost, of P360,000 based on an annual production of 200,000 units. In the preparation of performance analysis Minimum cash balance is P5,000. Cash can be borrowed in P1,000 increments from the local bank
for the month of September, how much flexible budget should be allowed for indirect labor costs? (assume no interest charges).
A. P30,000 C. P25,375 How much cash would be collected in June from sales?
B. P29,167 D. P26,100
A. P 7,700 C. P 8,000
Cash receipts budget B. P 8,500 D. P10,000
Sales
xviii
.Generous Company began its operations on January 1 of the current year. Budgeted sales for the first quarter are xxii
.The Avelina Company has the following historical pattern on its credit sales.
P240,000, P300,000, and P420,000, respectively, for January, February and March. Generous Company expects 20% 70 percent collected in month of sale
of its sales cash and the remainder on account. Of the sales on account, 70% are expected to be collected in the 15 percent collected in the first month after sale
month of sale, 25% in the month following the sale, and the remainder in the following month. 10 percent collected in the second month after sale
How much should Generous receive from sales in March? 4 percent collected in the third month after sale
A. P304,800 C. P388,800 2 percent uncollectible
B. 294,000 D. P295,200 The sales on open account have been budgeted for the last six months of 2007 are shown below:
July P 60,000
Credit sales August 70,000
xix
.Mendrez Company has a collection schedule of 60% during the month of sales, 15% the following month, and 15% September 80,000
subsequently. The total credit sales in the current month of September were P80,000 and total collections in September October 90,000
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November 100,000 Current months sales 12%

December 85,000 Prior months sales 75%
The estimated total cash collections during the fourth calendar quarter from sales made on open account during the Sales two months prior to current month 6%
fourth calendar quarter would be Sales three months prior to current month 4%
A. P172,500 C. P265,400 Cash discounts (2/30, net/90) 2%
B. P230,000 D. P251,400 Doubtful accounts 1%
Credit sales:
xxiii
.The Le Amore Company had the following budgeted sales for the first half of the current year: November estimated P2,000,000
Cash Sales Credit Sales October 1,800,000
January P70,000 P340,000 September 1,600,000
February 50,000 190,000 August 1,900,000
March 40,000 135,000 How much is the estimated credit to Accounts Receivable as a result of collections expected during
April 35,000 120,000 November?
May 45,000 160,000 A. P1,730,200 C. P1,762,000
June 40,000 140,000 B. P1,757,200 D. P1,802,000

The company is in the process of preparing a cash budget and must determine the expected cash collections by month. Increase in accounts receivable
xxvi
To this end, the following information has been assembled: .Lazaro Company will open a new store on January 1. Based on experience from its other retail
outlets, Lazaro is making the following sales projections:
Collections on sales: 60% in month of sale
30% in month following sale Cash Sales Credit Sales
10% in second month following sale January P600,000 P400,000
The accounts receivable balance on January 1 of the current year was P70,000, of which P50,000 represents February 300,000 500,000
uncollected December sales and P20,000 represents uncollected November sales. March 400,000 600,000
The total cash collected by Le Amore Company during the month of January would be: April 400,000 800,000
A. P410,000 C. P344,000 Lazaro estimates that 70% of the credit sales will be collected in the month following the month of the
B. P254,000 D. P331,500 sale, with the balance collected in the second month following the sale. Based on these data, the
balance in accounts receivable on January 31 will be increased by
Accounts receivable balance A. 400,000 C. P120,000
xxiv
.As of January 1, 2007, the Liberal Sales Company had an account receivable of P500,000. The sales for January, B. P280,000 D. P580,000
February, and March were as follows: P1,200,000, P1,400,000 and P1,500,000, respectively. Of each months sales,
80% is on account. 60% of account sales is collected in the month of sale, with remaining 40% collected in the Cash disbursements
xxvii
following month. .Cascades Company, a merchandising firm, is preparing its master budget and has gathered the
What is the accounts receivable balance as of March 31, 2007? following data to help budget cash disbursements:
A. P720,000 C. P587,200 Budgeted data:
B. P480,000 D. P600,000 Cost of goods sold P1,680,000
Desired decrease in inventories 70,000
Credit to accounts receivable Desired decrease in Accounts Payable 150,000
xxv
.Ironman Company is preparing its cash budget for the month ending November 30. The following information pertains to All of the accounts payables are for inventory purchases and all inventory items are purchased on
Ironmans past collection experience from its credit sales: account. What are the estimated cash disbursements for inventories for the budget period?

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A. P1,460,000 C. P1,900,000 1. Fifty four percent of all purchases and selling, general, and administrative expenses are paid
B. P1,600,000 D. P1,760,000 in the month purchased and the remainder in the following month.
2. Each months units of ending inventory is equal to one hundred thirty percent of the next
xxviii
.Albatross Company started its commercial operations on September 30 of the current year. Projected manufacturing months units of sales.
costs for the first three months of operations are P1,568,000, P1,952,000, and P2,176,000, respectively. Depreciation, 3. The cost of each unit of inventory is P200.
insurance, and property taxes represent P288,000 of the estimated manufacturing costs. Insurance was paid on 4. Selling, general, and administrative expenses, of which P20,000 is depreciation, are equal to
September 30, and property taxes will be paid in July next year. Seventy-five percent of the remainder of the fifteen percent of the current months sales.
manufacturing costs are expected to be paid in the month in which they are incurred, with the balance to be paid in the
following month. The cash payments for manufacturing costs in the month of November are: Actual and projected sales are as follows:
A. P1,568,000 C. P1,664,000 UNITS PESOS
B. P1,952,000 D. P1,856,000 November 11,800 P3,540,000
December 12,100 3,630,000
Ending cash balance January 11,900 3,570,000
xxix
.Albania Company expects its June sales to be P300,000, which is 25% higher than its May sales. Purchases were February 11,400 3,420,000
P200,000 in May and are expected to be P240,000 in June. All sales are on credit and are collected as follows: 80% in March 12,000 3,600,000
the month of the sale and 20% in the following month. All payments in the month of sales are given 2% discount. Sixty April 12,200 3,660,000
percent of purchases are paid in the month of purchase to take advantage of purchase term of 1/10, n/40. The
remaining amount is paid in the following month. The beginning cash balance on June 1 is P20,000. The ending cash xxx
.The respective amounts of budgeted purchases for the months of January and February are:
balance on June 30 would be: A. P2,418,000 and P2,360,000 C. P2,250,000 and P2,436,000
A. P64,160 C. P80,640 B. P2,380,000 and P2,280,000 D. P3,570,000 and P3,420,000
B. P73,000 D. P85,440
xxxi
.The budgeted cash disbursements for the month of February are:
Comprehensive A. P2,929,000 C. P2,949,000
Question Nos. 30 through 33 are based on the following information: B. P2,873,790 D. P2,853,790
Apollo Merchandiser asks your services to develop cash and other budget information for the first quarter of 2007. In
December 31, the store had the following balance: xxxii
.The amount of cash collected from sales during the month of January is:
Cash P 55,000
A. P3,338,760 C. P3,404,100
Accounts receivable 4,370,000
B. P3,551,160 D. P3,556,560
Inventories 3,094,000
Accounts payable 1,330,550 xxxiii
.The number of units to be purchased during the month of March is:
The following information are relevant to 2007 operations: A. 15,860 C. 12,000
Sales: B. 12,260 D. 15,600
a. Each months sales are billed on the last day of the month.
b. Customers are allowed a 3 percent discount if payment is made within 10 days after the billing date. Rajah Enterprises is a growing retailer of home care products. During the first four months of the
Receivables are booked gross. following year, it forecasts the following sales and purchases:
c. Sixty percent of the billings are collected within the discount period, twenty-five percent are collected
by the end of the month, nine percent are collected by the end of the second month, and six percent are Sales Purchases
considered entirely uncollectible. January P7,200,000 P4,200,000
February 6,600,000 4,800,000
Purchases: March 6,000,000 3,600,000
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April 7,800,000 5,400,000 September (forecast) 410,000 230,000

Rajah collects 70% of sales is collection during the month of sale, 20% the following month and 9% in the second month.
1% of sales are deemed uncollectible. The company makes 10 percent of its sales for cash and 90 percent on credit. Of the credit sales, 30
percent are collected in the month after the sale and 70 percent are collected two months after. Super Sales
In order to fully avail of the 2% discount, Rajah pays all the purchases by the tenth of the month following the month of pays for 45 percent of its purchases in the month after purchase and 55 percent two months after.
purchase.
Labor expense equals 15 percent of the current month's sales. General overhead expense equals P10,000
Sales for the month of May are expected to be P6,600,000 and the amount of purchases are P6,000,000. Operating per month. Interest payments of P35,000 are due in June and September. A cash dividend of P25,000 is
expenses to be paid during the month of May will be P1,440,000 and the cash balance by May 1 is P2,200,000. scheduled to be paid in June. Tax payments of P30,000 are due in June and September. There is a
scheduled purchase for cash of an equipment, P290,000 in September.
The Atlanta Corporation has forecast the following sales for the first seven months of the year:
Super Sales ending cash balance in May is P25,000. The minimum desired cash balance is P20,000. The
January P120,000 May P120,000 maximum desired cash balance is P50,000. Excess cash (above P50,000) is used to buy marketable
February 160,000 June 200,000 securities. Marketable securities are sold before borrowing funds in case of a cash shortfall (less than
March 180,000 July 220,000 P20,000).
April 240,000
xxxvi
.During the month of June, Super Sales expects to receive cash from sales amounting to:
Monthly material purchases are set equal to 20 percent of forecasted sales for the next month. Of the total material costs, 40 A. P606,000 C. P398,100
percent are paid in the month of purchase and 60 percent in the following month. Labor costs will run P60,000 per month, and B. P408,900 D. P359,100
fixed overhead is P30,000 per month. Interest payments on the debt will be P45,000 for both March and June. Finally, Atlantas
sales force will receive a 3 percent commission on total sales for the first six months of the year, to be paid on June 30. xxxvii
.The cumulative amount of marketable securities purchased as of July 31 amounts to:
A. P126,000 C. P143,300
xxxiv
.How much will be paid in the month of January for the purchase of materials? B. 132,500 D. P 0
A. P 27,200 C. P137,856
B. P117,200 D. P 33,600 xxxviii
.The amount of loan to be obtained to maintain a balance of P50,000 cash as of September 30 will be:
A. P109.4 C. P 9.4
xxxv
.How much does Atlanta plan to disburse in the month of June? B. P 59.4 D. P 0.0
A. P 41,600 C. P207,200
B. P100,000 D. P117,200 Question Nos. 39 through 45 are based on the following data:
The Ingo Corporation makes standard-size 2-inch fasteners, which it sells for P155 per thousand. Irine Tee,
Question Nos. 36 through 38 are based on the following: the major stockholder, manages the inventory and finances of the company. She estimates sales for the
Super Sales actual sales and purchases for April and May are shown here along with forecasted sales and purchases for June following months to be:
through September.
January P263,500 (1,700,000 fasteners)
Sales Purchases February P186,000 (1,200,000 fasteners)
April (Actual) P390,000 P200,000 March P217,000 (1,400,000 fasteners)
May (Actual) 420,000 220,000 April P310,000 (2,000,000 fasteners)
June (forecast) 390,000 210,000 May P387,500 (2,500,000 fasteners)
July (forecast) 350,000 240,000
August (forecast) 420,000 320,000 Last year Ingo Corporation's sales were P175,000 in November and P232,500 in December (1,500,000

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fasteners). Common stock 504,200

Retained earnings 390,000
Ms. Tee is preparing for a meeting with Peninsula Banking Corporation to arrange the financing for the first quarter. Based on Total Liabilities and Stockholders Equity P1,387,800
her sales forecast and the following information she has provided, you have to prepare a monthly cash budget, a monthly and
quarterly pro forma income statement, a pro forma quarterly balance sheet, and all necessary supporting schedules for the first xxxix
.The budgeted production respective to each month of the first quarter of the coming year are:
quarter. A. 1,400,000; 2,000,000; 2,500,000 C. 2,500,000; 2,000,000; 1,400,000
B. 1,400,000; 2,500,000; 2,000,000 D. 2,000,000; 1,400,000; 2,500,000
Past history shows that Ingo Corporation collects 50 percent of its accounts receivable in the normal 30-day credit period (the
month after the sale) and the other 50 percent in 60 days (two months after the sale). It pays for its materials 30 days after xl
.The amount of accounts payable paid in March for the purchase of materials is:
receipt. In general, Ms. Tee likes to keep a two-month supply of inventory in anticipation of sales. Inventory at the beginning of A. P150,000 C. P104,000
December was 2,600,000 units. (This was not equal to her desired two-month supply.) B. P120,000 D. P130,000
The major cost of production is the purchase of raw materials in the form of steel rods, which are cut, threaded, and finished. xli
.The expected cash collections on accounts receivable in the month of February are:
Last year raw material costs were P52 per 1,000 fasteners, but Ms. Tee has just been notified that material costs have risen,
A. P224,750 C. P 93,000
effective January 1, to P60 per 1,000 fasteners. The Ingo Corporation uses FIFO inventory accounting. Labor costs are B. P248,000 D. P186,000
relatively constant at P20 per thousand fasteners, since workers are paid on a piecework basis. Overhead is allocated at P10
per thousand units, and selling and administrative expense is 20 percent of sales. Labor expense and overhead are direct cash xlii
.The amount of accounts receivable outstanding as of March 31, 2007 is:
outflows paid in the month incurred, while interest and taxes are paid quarterly.
A. P217,000 C. P310,000
The corporation usually maintains a minimum cash balance of P25,000, and it puts its excess cash into marketable securities. B. P224,750 D. P108,500
The average tax rate is 40 percent, and the company usually pays out 50 percent of net income in dividends to stockholders. xliii
Marketable securities are sold before funds are borrowed when a cash shortage is faced. Ignore the interest on any short-term .The cost of goods sold for the first quarter of the coming year amounts to:
borrowings. Interest on the long-term debt is paid in March, as are taxes and dividends. A. P363,800 C. P426,400
B. P453,600 D. P373,400
As of year-end, the Ingo Corporation balance sheet was as follows:
xliv
Ingo Corporation .The total cash and marketable securities as of January 31 will be:
Balance Sheet A. P45,450 C. P91,800
December 31, 2006 B. P25,000 D. P54,450
xlv
ASSETS .The expected net income during the first quarter of the coming year is:
Current assets: A. P 91,080 C. P 96,840
Cash P 30,000 B. P161,400 D. P151,800
Accounts receivable 320,000
Inventory 237,800 Question Nos. 46 through 48 are based on the Russon Corporation, a retailer whose sales are all made on
Total current assets 587,800 credit. Sales are billed twice monthly, on the 10th of the month for the last half of the prior months sales,
Plant and equipment, net of accumulated depreciation of P200,000 800,000 and on the 20th of the month for the first half of the current months sales. The terms of all sales are 2/10,
Total Assets P1,387,800 net 30. Based upon past experience, the collection of accounts receivable is as follows:

LIABILITIES AND STOCKHOLDERS EQUITY Within the discount period 80%

Accounts payable P 93,600 On the 30th day 18%
Long-term debt, 8% 400,000 Uncollectible 2%
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xlvi
.How much cash can Russon plan to collect in September from sales made in August?
Russons average markup on its products is 20% of the sales price. All sales and purchases occur uniformly throughout the A. P337,400 C. P400,400
month. The sales value of shipments for May and the forecasts for the next four months follow: B. P343,000 D. P280,000
May (actual) P500,000
June 600,000 xlvii
.The budgeted peso value of Russons inventory on August 31 will be
July 700,000 A. P110,000 C. P112,000
August 700,000 B. P 80,000 D. P100,000
September 400,000
Russon purchases merchandise for resale to meet the current months sales demand and to maintain a desired monthly ending xlviii
.How much cash can Russon plan to collect from accounts receivable during July?
inventory of 25% of the next months sales. All purchases are on credit with terms of net/30. Russon pays for 50% of a
A. P574,000 C. P619,000
months purchases in the month of purchase and 50% in the month following the purchase. B. P662,600 D. P608,600

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