Name:

Subject and Schedule:

Unit 2: The Master Budget Exercises

1. Preparing a Sales Budget

Patrick Inc. sells industrial solvents in five-gallon drums. Patrick expects the following units to be
sold in the first three months of the coming year.
January 41,000
February 38,000
March 50,000

The average price for a drum is P35.

Required: Prepare a sales budget for the first three months of the coming year, showing units and sales
revenue by month and in total for the quarter.

1 2 3 Total

Units

Unit selling price

Budgeted sales

2. Preparing a Production Budget

Patrick Inc. makes industrial solvents. In the first four mounts of the coming year, Patrick expects
the following unit sales:
January 41,000
February 38,000
March 50,000
April 51,000

Patrick’s policy is to have a 25% of next month’s sales in ending inventory. On January 1, it is expected
that there will be 6,700 drums of solvent on hand.

Required: Prepare a production budget for the first quarter of the year. Show the number of drums that
should be produced each month as well as for the quarter in total.

Patrick Inc.

Production Budget

For the Quarter Ended March 31

Quarter

Jan Feb Mar Quarter

Sales in units

Desired ending inventory

 Total needs

Less: Beginning inventory

Units to be produced

3. Preparing a Direct Materials Purchases Budget

Patrick Inc. makes industrial solvent sold in five-gallon drums. Planned production in units for the
first three months of the coming year is:
January 43,800
February 41,000
March 50,250

Each drum requires 5.5 gallons of chemicals and one plastic drum. Company policy requires that
ending inventories of raw materials for each month be 15% of the next month’s production needs. That
policy was met for the ending inventory of December in the prior year. The cost of one gallon of chemicals
is P2.00. The cost of one drum is P1.60. (Note: Round all unit amounts to the nearest unit.

Required:

a. Calculate the ending inventory of chemicals in gallons for December of the prior year, and for
January and February. What is the beginning inventory of chemicals for January?
Chemicals in gallons ending inventory: 36,135 33,825 41,456
So beg Inv for Jan is 36,135
b. Prepare a direct materials purchases budgets for chemicals for the months of January and
February.
c. Calculate the ending inventory of drums for December of the prior year, and for January and
February.
Drums ending inventory: 6,570 6,150 7,538
d. Prepare a direct materials purchases budgets for drums for the months of January and
February.

Patrick Inc.

Direct Materials Purchases Budget

For the Year Ended December 31, 2020

Gallons of chemical Quarter

1 2 Year

Units to be produced

Direct materials per unit

Production needs

Desired ending inventory

Total needs

Less: Beginning inventory

Direct materials to be purchased

Cost gallon of chemical

Total Purchase cost plain t-shirts

Plastic drum Year

Units to be produced

Direct materials per unit

Production needs

Desired ending inventory

Total needs

Less: Beginning inventory

Direct materials to be purchased

Cost per plastic drum

Total Purchase cost of ink

Total direct materials purchase cost

4. Preparing a Direct Labor Budget

Patrick Inc. makes industrial solvents. Planned production in units for the first three months of the
coming year is:

January 43,800
February 41,000
March 50,250

Each drum of industrial solvent takes 0.3 direct labor hours. The average wage is P18 per hour.

Required: Prepare a direct labor budget for the months of January, February, and March, as well as
the total for the first quarter.

Patrick Inc.

Direct Labor Budget

For the Year Ended December 31, 2020

Quarter

1 2 3 Total

Units to be produced

Direct labor time per unit in hours

Total hours needed

Average wage per hour

Total direct labor cost

5. Preparing an Overhead Budget

Patrick Inc. makes industrial solvents. Budgeted direct labor hours for the first three months of the
coming year are:
January 13,140
February 12,300
March 15,075

The variable overhead rate is P0.70 per direct labor hour. Fixed overhead is budgeted at P2,750 per month.

Patrick Inc.

Overhead Budget

For the 1st Quarter

Quarter

January February March Year

Budgeted direct labor hours

Variable overhead rate

Budgeted variable overhead

Budgeted fixed overhead*

Total Overhead

Required: Prepare an overhead budget for the months of January, February, and March, as well as the total
for the first quarter. (Note: Round all dollar amounts to the nearest dollar.)

6. Preparing an Ending Finished Goods Inventory Budget.

Andrew Company manufactures a line of office chairs. Each chair takes P14 of direct materials
and uses 1.9 direct labor hours at P16 per direct labor hour. The variable overhead rate is P1.20 per direct
labor hour and the fixed overhead rate is P1.60 per direct labor hour. Andrews expects to have 675 chairs in
ending inventory. There is no beginning inventory of office chairs.

Required:

a. Calculate the unit product cost. (Note: Round to the nearest cent.)
b. Calculate the cost of budgeted ending inventory. (Note: Round to the nearest dollar.)

a. Direct materials
Direct Labor
Overhead:
Variable
Fixed
Total unit cost
 b. Ending Finished Goods Inventory Budget

Andrew Company
Ending Finished Goods Inventory Budget
For the period ended
Logo t-shirts
Unit Cost
Total ending inventory

7. Preparing a Cost of Goods Sold Budget

Andrews Company manufactures a line of office chairs. Each chair takes P14 of direct materials
and uses 1.9 direct labor hours at P16 per direct labor hour. The variable overhead rate is P1.20 per direct
labor hour and the fixed overhead rate is P1.60 per direct labor hour. Andrews expects to produce 20,000
chairs next year and expects to have 675 chare in ending inventory. There is no beginning inventory of
office chairs. Prepare a cost of goods sold budget for Andrews Company.

Product cost
DM –
DL -
VOH –
FOH -
Product cost =
COGS = Beg + New – End =

Texas Rex Inc.

Cost of Goods Sold Budget
For the Year Ended December 31, 2020
Direct materials used
Direct labor used
Overhead
Budgeted manufacturing costs
Beginning finshed goods
Cost of goods available for sale
Less: Ending finished goods
Budgeted cost of goods sold

8. Preparing a Selling and Administrative Expenses Budget

Fazel Company makes and sells paper products. In the coming year, Fazel expects total sales of
P19,730,000. There is a 3% commission on sales. In addition, fixed expenses of the sales and
administrative offices include the following:
 Salaries P960,000
Utilities 365,000
Office space 230,000
Advertising 1,200,000

Required: Prepare a selling and administrative expenses budget for Fazel Company for the coming year.

Year

Total variable expenses

Fixed S&A expenses

Salaries

Utilities

Office Space

Advertising

Total fixed expenses

Total S&A expenses

9. Preparing a Budgeted Income Statement

Oliver Company provided the following information for the coming year:

Units produced and sold 160,000

Cost of goods sold per unit P 6.30
Selling price P 10.80
Variable S&A expenses per unit P 1.10
Fixed S&A expenses P423,000
Tax rate 35%
Required: Prepare a budgeted income statement for Oliver Company for the coming year. (Note: Round all
income statement amounts to the nearest dollar.)

Oliver Company
Budgeted Income Statement
For the Year Ended
Sales
Less: Cost of Goods Sold
Gross margin
Less: VariableS&A expenses
Fixed S&A expenses
Income before income taxes
Less: Income taxes (121,000 x 35%)
Net Income
10. Preparing a schedule of Cash Collections on Accounts

Kailua and Company is a legal services firm. All sales of legal services are billed to the client
(there are no cash sales). Kailua expects that, on average, 20% will be paid in the month of billing, 50%
will be paid in the month following billing, and 25% will be paid in the second month following billing. For
the next five months, the following sales billings are expected:

May P84,000
June 100,800
July 77,000
August 86,800
September 91,000

Required: Prepare a schedule showing the cash expected in payments on accounts receivable in August and
in September.

Source August September

Received on account from:
May
June
July
August
September

11. Preparing an Accounts Payable Schedule

Wight Inc. purchases raw materials on account for use in production. The direct materials
purchases budget shows the following expected purchase on account:

April P374,400
May 411,200
June 416,000

Wight typically pays 20% on account in the month of billing and 80% the next month.

Required:

a. How much cash is required for payment on account in May?

b. How much cash is expected for payments on account in June?

Source May June

Cash needed for payments:
April
May
June
 Total cash needed

12. La Famiglia Pizzeria provided the following information for the month of October:

a. Sales are budgeted, to be P157,000. About 85% of sales are cash; the remainder are on account.
b. La Famiglia expects that, on average, 70% of credit sales will be paid in the month of sale, and 28 will
be paid in the following month.
c. Food and supplies purchases, all on account, are expected to be P116,000. La Famiglia pays 25% in
the month of purchase and 75% in the month following purchase.
d. Most of the work is done by the owners, who typically withdraw P6,000 a month from the business as
their salary. (Note: The P6,000 is a payment in total to the two owners, not per person.) Various part-
time workers cost P7,300 per month. They are paid for their work weekly, so on average 90% of their
wages are paid in the month incurred and the remaining 10% in the next month.
e. Utilities average P5,950 per month. Rent on the building is P4,100 per month.
f. Insurance is paid quarterly; the next payment of P1,200 is due in October.
g. September sales were P181,500 and purchases of food and supplies in September equalled P130,000.
h. The cash balance on October 1 is P2,147.

Required:

a. Calculate the cash receipts expected in October. (Hint: Remember to include both cash sales and payments
from credit sales.)
b. Calculate the cash needed in October to pay for food purchases.
c. Prepare a cash budget for the month of October

Solution:

a.

Source October
Cash Sales
Received on account from:
Month of sale
September

Total cash receipts

b. Cash payment
c.

Year

Beginning cash balance

Cash sales and collections on account:

 Total cash available

Less disbursements

Payments for:

Raw material

Owner’s withdrawal

Worker’s salary

Utilities

Rent

Insurance

Total disbursements

Ending cash balance

13. Select Operational Budgets

Joven Products produces coat racks. The projected sales for the first quarter of the coming year
and the beginning and ending inventory data are as follows:

Unit Sales 100,000

Unit Price P 15
Units in beginning inventory 8,000
Units in targeted ending inventory 12,000

The coat racks are molded and then painted. Each rack requires four pounds of metal, which costs
P2.50 per pound. The beginning inventory of materials is 4,000 pounds. Joven Products wants to have
6,000 pounds of metal in inventory at the end of the quarter. Each rack produced requires 30 minutes of
direct labor time, which is billed at P9 per hour.

Required:

a. Prepare a sales budget for the first quarter.

b. Prepare a production budget for the first quarter
c. Prepare a direct materials purchases budget for the first quarter.
d. Prepare a direct labor budget for the first quarter.

Solution:

a. Sales

Joven Products
Sales Budget
For the First Quarter

Units
Unit Price
 Sales

b. Production Budget

Joven Products
Production Budget
For the First Quarter

Sales (in units)

Desired ending inventory
Total needs
Less: Beginning Inventory
Units to be produced

c. Direct Materials Purchases Budget

Joven Products
Direct Materials Purchases Budget
For the First Quarter

Units to be produced
Direct materials per unit (lb.)
Production needs (lb.)
Desired ending inventory (lb.)
Total needs (lb.)
Less: Beginning inventory (lb.)
Materials to be purchased (lb.)
Cost per pound
Total purchase cost

d. Direct Labor Budget

Joven Products
Direct Labor Budget
For the First Quarter

Units to be produced
Labor hours per unit
Total hours needed
Cost per hour
Total direct labor cost

14. Cash Budgeting

Kylles Inc. expects to receive cash from sales of P45,000 in March. In addition, Kylles expects to
sell property worth P3,500. Payments for materials and supplies are expected to total P10,000, direct labor
payroll will be P12,500, and other expenditures are budgeted at P14,900. On March 1, the cash account
balance is P1,230.

Required:

a. Prepare a cash budget for Kylles Inc. for the month of March.
b. Assume that Kylles Inc. wanted a minimum cash balance of P15,000 and that it could borrow
from the bank in multiples of P1,000 at an interest rate of 12% per year. What would the
 adjusted ending balance for March be for Kylles? How much interest would Kylles owe in
April, assuming that the entire amount borrowed in March would be paid back?

Solution:

a.

Kylles Inc.
Cash Budget for the Month of March

Beginning cash balance

Cash sales
Sale of property
Total cash available
Less disbursements:
Materials and supplies
Direct labor payroll
Other expenditures
Total disbursements
Ending cash balance

b. Unadjusted ending balance

Plus borrowing
Adjusted ending balance

In April, interest owed would be () = P.

15. Essay:
Name:
Course:
a. How hard is the master budget for you? Explain.
b. Who helped you answer it if any?
c. Did you receive an answer key from somebody to guide you?
d. What are the challenges you’ve faced this semester while taking modular classes?

*Rest assured your answer will be confidential. I know your answers will most likely vary in this part. ;)