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    MANACC - NotesW - Answers - BEP - The Master Budget

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    MANACC - NotesW - Answers - BEP - The Master Budget

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    MANACC - NotesW - Answers - BEP - The Master Budget

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    MBA - Management Accounting & Control

    Topic #1 - BREAK-EVEN ANALYSIS

    Financial Accounting
    ● Historical in nature

    ● Uses International Financial Reporting Standards

    ● Reports are wholistic

    ● Reports are for general purpose

    ● With unifying equation: A = L + OE

    ● Focuses on Accounting & Finance

    ● Focuses on the process of preparing the financial statements

    ● Precision

    ● Used by interested parties, inside & outside of the org.

    Management Accounting
    ● Deals about the future

    ● Does not use International Financial Reporting Standards

    ● Reports are segmentized

    ● Reports are for Management use only

    ● No unifying equation

    ● Multi-disciplinary; also deals with other areas of knowledge & disciplines

    ● Concerns with the usefulness of the financial statements

    ● Timeliness

    ● Used by managers within the organization

    Fixed Costs – costs that remain constant in total regardless of the change in the level
    of production and sales. Examples: property taxes, depreciation on buildings and
    equipment, salaries of maintenance personnel.

    Variable Costs – costs that change in total in direct proportion to the changes in the
    level of production and sales.

    Break-Even Point – The volume of activity where the organization’s revenues and
    expenses are equal

    FORMULA:
    BEP (Pesos) = Total Fixed Costs___
    Contribution Margin Rate

    BEP (Units) = Total Fixed Costs___


    Unit Contribution Margin

    Sample Problem: Unit


    Units Price Amount Percentage
    SALES 8,000 P’20 P’160,000 100%
    LESS; VARIABLE COSTS 8,000 12 96,000 60%___
    CONTRIBUTION MARGIN 8 64,000 40%
    LESS: FIXED COSTS ======= 40,000__=========
    PROFIT P’ 24,000
    ==========

    BEP (pesos) = Total Fixed Costs P’40,000 = P’100,000


    CM Rate 40% ========

    BEP (units) = Total Fixed Costs P’40,000 = 5,000 units


    CM/unit P’8 =========

    ACTIVITY:
    ANSWER THE FOLLOWING:

    1. The school is planning to hold its annual alumni homecoming dubbed as “A Night of
    Extravaganza”. The committee in charge of this event has assembled the following
    expected related costs. The committee would like to charge P’800 per person for
    the activity.

    Dinner per person P’ 250


    Favors & freebies per person 300
    Band 25,000
    Tickets & advertisement 40,000
    Venue rental 20,000
    Stand-up Comedian 15,000

    Compute the following and explain yours answers:


    A. Break-even point in units
    B. Break-even point in pesos
    C. Assume that last year only 200 persons attended and the same number is
    expected this year. What price per ticket must be charged to break-even?

    2. The Company produces a single product and presented below are data taken from
    its recent income statement:
    Sales ( 135,000 units at P’20) P’2,700,000
    Less: Variable Costs 1,890,000
    Contribution Margin 810,000
    Less: Fixed Costs 900,000
    Net Loss P’( 90,000)
    ==========

    a. The sales manager feels that an P’80,000 increase in advertising budget


    combined with an intensified effort by the sales staff, will result in a
    P’700,000 increase in sales. Considering these changes, will the
    company’s net profit increase or decrease?
    b. The president is convinced that a 10% reduction in the selling price
    combined with an increase of P’35,000 in the advertising budget, will
    cause unit sales to double. Considering these changes, how much is the
    company’s expected net income?
    c. A new package for the product is being considered to induce sales. This
    package costs P’0.60 per unit. Considering the new package cost, how
    many units would have to be sold to earn a profit of P’45,000.

    ANSWERS:
    1. A. BEP (units) = Fixed Costs 100,000 (25K+40K+20K+15K)
    CM per unit 250 ($800 - $550)
    = 400 units

    B. BEP ($) = Fixed Costs 100,000 (25K+40K+20K+15K)


    CM ratio 31.25% ($800-100% - $550-68.75%)

    C. Sales (200 X $1,050) 210,000


    Less: Variable costs (200 $550) 110,000
    Contribution Margin 100,000
    Less Fixed Costs 100,000
    0

    For the company to break-even, contribution margin should be equal to


    fixed costs (=$100,000) Since variable cost per unit remains the same
    ($550) and there are only 200 attendees (units), then total variable costs
    are $110,000. In this case, Sales must be $210,00 and $210,00 divided by
    200 attendees = $1,050 which should be the selling price.

    2. A. Sales (170,000 X P’20) 3,400,000


    Less Variable Costs (170,000 X P’14) 2,380,000
    Contribution Margin 1,020,000
    Less: Fixed Costs 980,000
    Profit 40,000
    ========
    Note:
    P’700,000 increase in sales means 35,000 units (700,000/P’20), so 35,000 plus
    135,000 = 170,000 units

    B. Sales (270,000=double X P’18) 4,860,000


    Less: Variable Costs (270,000 X P’14) 3,780,000
    Contribution Margin 1,080,000
    Less: Fixed Costs 935,000
    Profit 145,000
    ========

    C. BEP (units) = Fixed Costs + Profit


    CM/unit

    = 900,000 + 45,000
    P’5.40 (P’20-P’14.60)

    = 175,000 units
    Topic #2 - THE MASTER BUDGET

    A budget is a plan expressed in quantitative, usually monetary, terms covering a


    specified period of time, usually one year. The budget serves as

    1. An aid in making and coordinating short-range plans


    2. A device for communicating these plans to the various responsibility center
    managers
    3. A way of motivating managers to achieve their goals
    4. A benchmark for controlling ongoing activities
    5. A basis for evaluating the performance of responsibility centers and their
    managers
    6. A means of educating managers.

    Budgeting involves 1. Establishing specific goals, 2. Executing plans to achieve the


    goals, and 3. Periodically comparing actual results with the goals. Budgeting affects the
    following managerial functions:

    1. Planning
    2. Directing
    3. Controlling

    A master budget is an integrated set of operating, investing and financing


    budgets for a period of time. The master budget begins with preparing the operating
    budgets, which form the budgeted income statement. The income statement budgets
    are normally prepared in the following order:

    1. Sales budget
    2. Production budget
    3. Direct materials purchases budget
    4. Direct labor cost budget
    5. Factory overhead cost budget
    6. Cost of goods sold budget
    7. Selling and administrative expenses budget
    8. Budgeted income statement

    After the budgeted income statement is prepared, the budgeted balance sheet is
    prepared. Two major budgets comprising the budgeted balance sheet are the cash
    budget and the capital expenditure budget..

    ACTIVITY:
    ANSWER THE FOLLOWING:
    Silent Company prepares monthly cash budgets. Relevant data from operating budget
    for 2022 are as follows:
    January February
    Sales P’ 350,000 P’ 400,000
    Direct materials purchases 95,000 110,000
    Direct Labor 80,000 95,000
    Manufacturing Overhead 60,000 75,000
    Selling & Administrative Expenses 75,000 85,000

    All sales are on account. Collections are expected to be 50% in the month of sale, 30%
    in the first month following the sale, and 20% in the second month following the sale.
    40% of direct materials purchases are paid in cash in the month of purchase, and the
    balance due is paid in the month following the purchase. All other items above are paid
    in the month incurred. Depreciation has been excluded from manufacturing overhead
    and selling and administrative expenses.

    Other data:
    1. Credit sales for November, 2021 = P’200,000
    December, 2021 = 280,000
    2. Purchases of Direct materials: December, 2021 = P’90,000
    3. Other receipts:
    January, 2022 = collection of December 31, 2021 interest receivable
    P’3,000
    February, 2032 = Proceeds from sale of securities, P’5,000
    4. Other disbursements: February = payment of P’20,000 for land
    5. The company’s cash balance on January 1, 2022 is expected to be P’60,000.
    The company wants to maintain a minimum cash balance of P’50,000.

    ANSWERS:

    Silent company
    Cash Budget
    For the months of January and February, 2022
    January February

    Cash Balance, Beginning of 60,000 55,000


    CASH RECEIPTS
    Cash collections:
    Credit sales-Nov. 200,000 X 20% 40,000
    Credit sales-Dec. 280,000 X 30% 84,000
    280,000 X 20% 56,000
    Credit Sales-Jan. 350,000 X 50% 175,000
    350,000 X 30% 105,000
    Credit sales-Feb. 400,000 X 50% 200,000
    Other Receipts:
    Collection of Interest receivable 3,000
    Proceeds from sale of securities 5,000
    —--------- —---------
    Total 362,000 421,000
    —--------- —---------
    CASH DISBURSEMENTS
    Payments of Purchases
    Dec purchases - 90,000 X 60% 54,000
    Jan purchases - 95,000 X 40% 38,000
    95,000 X 60% 57,000
    Feb purchases - 110,000 X 40% 44,000
    Other Disbursements:
    Direct Labor 80,000 95,000
    Manufacturing Overhead 60,000 75,000
    Selling & Adm Expenses 75,000 85,000
    Land 20,000
    —-------- —--------
    Total 307,000 376,000
    —-------- —--------
    CASH BALANCE, END P’55,000 P’45,000
    Add: Bank Loan ======= 5,000
    P’50,000
    =======

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