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    Budgeting

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    Jade Gomez
    Russel Gil Corporation has projected annual sales of P3.5 million with income before tax estimated at 12% of sales and selling/administrative expenses at 25% of sales. Budgeted beginning inventory levels are P220,000 for raw materials, P250,000 for goods in process, and P350,000 for finished goods, with ending levels projected to be P270,000, P300,000, and P420,000 respectively. The estimated cost of goods sold is P2,205,000 and estimated raw material purchases are P732,000.

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    © All Rights Reserved
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    Budgeting

    Uploaded by

    Jade Gomez
    8K views28 pages
    Russel Gil Corporation has projected annual sales of P3.5 million with income before tax estimated at 12% of sales and selling/administrative expenses at 25% of sales. Budgeted beginning inventory levels are P220,000 for raw materials, P250,000 for goods in process, and P350,000 for finished goods, with ending levels projected to be P270,000, P300,000, and P420,000 respectively. The estimated cost of goods sold is P2,205,000 and estimated raw material purchases are P732,000.

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    Russel Gil Corporation has projected annual sales of P3.5 million with income before tax estimated at 12% of sales and selling/administrative expenses at 25% of sales. Budgeted beginning inventory levels are P220,000 for raw materials, P250,000 for goods in process, and P350,000 for finished goods, with ending levels projected to be P270,000, P300,000, and P420,000 respectively. The estimated cost of goods sold is P2,205,000 and estimated raw material purchases are P732,000.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    8K views28 pages

    Budgeting

    Uploaded by

    Jade Gomez
    Russel Gil Corporation has projected annual sales of P3.5 million with income before tax estimated at 12% of sales and selling/administrative expenses at 25% of sales. Budgeted beginning inventory levels are P220,000 for raw materials, P250,000 for goods in process, and P350,000 for finished goods, with ending levels projected to be P270,000, P300,000, and P420,000 respectively. The estimated cost of goods sold is P2,205,000 and estimated raw material purchases are P732,000.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 28

    FINANCIAL

    AND
    OPERATING
    BUDGET
    Past collections experienced by Thor Company indicate 60% of
    the net sales billed in a month are collected during the month of
    sales, 30% are collected in the following month. And 10% are
    collected in the second following month. A record of monthly net
    sales of previous month is as follows:

    On January 1, 2011, the net accounts receivable balance showed


    P 250, 000.

    REQUIRED: Determine the following:


    •Cash collections on accounts receivable every
    •Accounts receivable balance at the end of each month

    November P350,00 March P440,000


    2010 December P420,000 April P500,000
    January P450,000 2011 May P550,000
    2011 February P380,000 June P600,000
    Russel Gil Corporation has the following budget estimates for its second year of
    operations:

    Projected sales P 3,500,000


    Projected income before tax 12% of sales
    Estimated selling and administrative expenses 25% of sales
    Direct Labor and factory overhead are budgeted at 70% of the total manufacturing cost
    Inventories are estimated as follows:
    Raw Materials Goods in process Finished Goods
    Beginning 220,000 250,000 350,000
    Ending 270,000 300,000 420,000

    1. The estimated cost of goods sold would be:


    a. 2,275,000 c. 2,325,000
    b. 2,205,000 d. 1,750,000

    2. The estimated purchases of raw materials would be


    a. 967,500 c. 697,500
    b. 732,000 d. 747,500

    ANSWERS: 1. B 2. D
    Washington Company has the following 2012 budget data:

    Beginning finished goods inventory 40,000


    Direct Labor P 20 per unit
    Sales 70,000
    Variable Factory Overhead P 5 per unit
    Ending finished goods inventory 30,000
    Fixed Factory Overhead P 80,000
    Direct Materials P 10 per unit

    3. What are the 2012 total budgeted production costs?


    a. P 2,100,000
    b. P 2,180,000
    c. P 2,240,000
    d. P 2,320,000

    B
    Montana Company’s budget contains the following information:

    Units
    Beginning finished goods inventory 85
    Beginning work-in-process in equivalent units 10
    Desired ending finished goods inventory 100
    Desired ending work-in-process in equivalent units 40
    Projected sales 1,800

    4. How many equivalent units should Montana plan to produce?


    a. 1,565
    b. 1,800
    c. 1,815
    d. 1,845

    D
    5. Josefina Company expects to manufacture and sell 30,000
    baskets in 2012 for P 6 each. There are 3,000 baskets in
    beginning finished goods inventory with target ending inventory
    of 4,000 baskets. The company keeps no work in process
    inventory.

    What amount of sales revenue will be reported on the 2012


    budgeted income statement?
    a. P 174,000 c. P 186,000
    b. P 180,000 d. P 204,000

    A
    6. A company’s product has an expected 4-year life cycle from research, development,
    and design through its withdrawal from the market. Budgeted costs are:

    Upstream costs (R&D, Design) P 2,000,000


    Manufacturing costs 3,000,000
    Downstream costs (marketing, Distribution and Customer Service) 1,200,000
    After-purchase costs 1,000,000

    The company plans to produce 200,000 units and price the product at 125% of the
    whole life unit cost. Thus, the budgeted unit selling price is
    a. P 15 c. P 36
    b. P 31 d. P 45

    D
    7. Following is the sales budget of U2 Company for the period January to June 2013:
    MONTHS UNITS
    January 100,000
    February 90,000
    March 90,000
    April 80,000
    May 70,000
    June 70,000

    The company’s projection is to have inventory on hand at the end of each month
    equal to 70% of the sales for the month following. It is assumed that the inventory at
    the end of December 2013 will meet this requirement. It is also estimated that the
    80,000 units will be sold in July 2013.

    What is the total production budget in units for the six months period ending June 30,
    2013?
    a. 556,000 c. 524,000
    b. 486,000 d. 479,000

    B
    8. Backstreet Girls Corporation plans to sell 200, 000 units of
    product XEY in July and anticipated a growth sales of 5% per
    month. The target ending inventory in units of the product is
    80% of the next month’s estimated sales. There are 150,000
    units in inventory as of the end of June.

    The production requirement in units of XEY or the quarter


    ending September 30 would be
    a. 670,560 c. 665,720
    b. 691,525 d. 675,925

    C
    9. Colorado Company desires an ending inventory of P 60,000. It
    expects sales of P 120,000 and has a beginning inventory of
    P 40,000. Cost of sales is 60% of sales.

    Budgeted purchases are


    a. P 60,000
    b. P 72,000
    c. P 92,000
    d. P 132,000

    C
    10. Nebraska Company, a merchandising firm, is preparing its master budget and has
    gathered the following data to help budget cash disbursements:

    Budgeted data:
    Desired decrease in inventories 70,000
    Cost of Goods Sold P 1,680,000
    Desired decrease in accounts payable 150,000

    All of the accounts payables are for inventory purchases and all inventories are
    purchased on account. What are the estimated cash disbursements for inventories
    for the budget period?

    a. P 1,460,000
    b. P 1,600,000
    c. P 1,900,000
    d. P 1,760,000

    D
    SEATWORK
    1. The projected sales price for a new product (which is still
    in the development stage of the product life cycle) is P50.
    The company has estimated the life-cycle cost to be P30
    and the first-year cost to be P60. On this type of product,
    the company requires a P12 per unit profit. What is the
    target cost of the new product?

    a. P60 c. P38
    b. P30 d. P43
    2. The preparation of an organization's budget

    a. forces management to look ahead and try to see


    the future of the organization.

    b. requires that the entire management team work


    together to make and carry out the yearly plan.

    c. makes performance review possible at all levels of


    management.

    d. all of the above choices.


    3. Ivory Company has the following expected pattern of
    collections on credit sales: 70 percent collected in the month of
    sale, 15 percent in the month after the month of sale, and 14
    percent in the second month after the month of sale. The
    remaining 1 percent is never collected. At the end of May, Ivory
    Company has the following accounts receivable balances:
    From April sales P21,000
    From May sales 48,000

    Ivory's expected sales for June are P150,000. What were total
    sales for April?
    a. P150,000 c. P 70,000
    b. P 72,414 d. P140,000
    4. Bali Company has a policy of maintaining an inventory of
    finished goods equal to 30 percent of the following month's
    sales. For the forthcoming month of March, Bali has
    budgeted the beginning inventory at 30,000 units and the
    ending inventory at 33,000 units. This suggests that

    a. February sales are budgeted at 10,000 units less than March


    sales.
    b. March sales are budgeted at 10,000 units less than April sales.
    c. February sales are budgeted at 3,000 units less than March
    sales.
    d. March sales are budgeted at 3,000 units less than April sales.
    5. Which of the following is not an advantage of budgeting?

    a. It requires managers to state their objectives.


    b. It facilitates control by permitting comparisons of budgeted
    and actual results
    c. It facilitates performance evaluation by permitting
    comparisons of budgeted and actual results
    d.It provides a check-up device that allows managers to keep
    close tabs on their subordinates
    6. Budgets are a necessary component of financial decision
    making because they provide a

    a. Efficient allocation of resources


    b. Means to use all the firm’s resources
    c. Means to check managerial discretion
    d. Automatic corrective mechanism for errors
    7. In an organization that plans by using comprehensive
    budgeting, the master budget

    a. A compilation of all the separate operational and


    financial budget schedules of the organization

    b. The booklet containing budget guidelines, policies and


    forms to use in the budgeting process

    c. The current budget updated for operations for part of the


    current year

    d. A budget for a non-profit entity after it is approved by the


    appropriate authoritative body
    8. Which of the following equations can be used to budget
    purchases? (BI= Beginning inventory, EI= ending inventory
    desired, COGS= Budgeted cost of goods sold)

    a. Budgeted purchases= COGS + BI – EI


    b. Budgeted purchases= COGS + BI
    c. Budgeted purchases= COGS + EI + BI
    d. Budgeted purchases= COGS + EI –BI
    9. South Dakota Company budgets sales of 22,000 units for
    January, 30,000 for February. The budgeted beginning
    inventory for January 1 was 7,000 units. South Dakota
    desires an ending inventory equal to one-half of the
    following month’s sales needs. Budgeted production for
    January is

    a. 37,000 units
    b. 30,000 units
    c. 26,000 units
    d. 14,000 units
    10. New Mexico Company plans to sell 24,000 units of Product
    A in July and 30,000 units in August. Sales of Product A during
    June were 25,000 units. Past experience has shown that end-of
    month inventory must equal 3,000 units plus 30% of the next
    month’s sales. On June 30, this requirement was met. Based on
    these data, how many units of Product A must be produced
    during the month of July?

    a. 28,800
    b. 22,200
    c. 24,000
    d. 25,800
    11. The cash receipts budget includes

    a. Funded depreciation
    b. Operating supplies
    c. Extinguishment of debt
    d. Loan proceeds
    12. Which of the following schedules would be the last item to
    be prepared in the normal budget preparation process?

    a. Direct labor budget


    b. Cost of goods sold budget
    c. Cash budget
    d. Manufacturing overhead budget
    13. In the preparation of a cash budget with clear-cut
    information on sources and uses of funds, all of the following
    would classified as a cash flow under investing activities,
    except:

    a. Collection of a loan from subsidiary


    b. Purchase of a patent from an inventor
    c. Sale of plant assets
    d. Dividends received on stock held as an investment
    14. In the preparation of a cash budget with clear-cut
    information on sources and uses of funds, all of the following
    would classified as a cash flow under financing activities, except:

    a. The conversion of the company’s own preferred stock into


    common stock
    b. The declaration and payment of a cash dividend on the
    company’s own common stock
    c. The repayment of principal on a mortgage
    d. The sale of the company’s own preferred stock for cash
    15. A flexible budget is

    a. One that can be changed whenever a manager so desires


    b. Adjusted to reflect expected costs at the actual level of
    activity
    c. One that uses the formula “total cost= cost per unit x units
    produced”
    d. The same as continuous budget
    16. Which of the following is a difference between a static
    budget and a flexible?

    a. A flexible budget includes only variable costs; a static budget


    includes only fixed costs
    b. A flexible budget includes all costs; a static budget includes
    only fixed costs
    c. A flexible budget gives allowances for different levels of
    activity while a static budget does not
    d. None of the choices

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