CHAPTER 6

SHORT-TERM BUDGETING

[Problem 1]
Zamboanga Company
Production Budget
For the Third Quarter, July-September, 200X

July August September Total

Budgeted sales 30,000 45,000 60,000 135,000
Add: Finished goods – end.
(40% x next month's sales) 18,000 24,000 20,000 20,000
Total goods available for sale 48,000 69,000 80,000 155,000
Less: Finished goods – beg. 10,000 18,000 24,000 10,000
Budgeted production 38,000 51,000 56,000 145,000

[Problem 2]
Aparri Company
Budgeted Materials Purchases
For The Year Ended, December 31, 2005

Q1 Q2 Q3 Q4 Total
Budgeted production (units) 80,000 120,000 200,000 180,000 580,000
x Standard materials/unit 3 3 3 3 3
Materials used 240,000 360,000 600,000 240,000 1,740,000
Add: Materials inventory - end
(20% x next quarter's sales) 72,000 120,000 108,000 54,000(1) 54,000
Total materials 312,000 480,000 708,000 594,000 1,794,000
Less: Materials inventory-beg. 42,000 72,000 120,000 108,000 42,000
Materials purchase (units) 270,000 408,000 588,000 486,000 1,752,000
x Standard materials cost per unit P 200 P 200 P 200 P 200 P 200
Budgeted materials purchases
(pesos) P 54,000,000 P 81,600,000 P117,600,000 P97,200,000 P350,400,000
(1)
90000 x 3 x 20% = 54,000

[Problem 3]
a. Cagayan Corporation
Budgeted Production
For The Second Quarter, April-June 20__

April May June Total

Budgeted sales (units) 90,000 98,000 45,000 233,000
Add: Finished goods inventory - ending (1) 25,600 15,000 12,000 12,000
Total goods available for sale 115,600 113,000 57,000 245,000
Less: Finished goods inventory - beginning 14,000 25,600 15,000 14,000
Budgeted Production 101,600 87,400 42,000 231,000

(1)
FG, end = 6000 + 20% (next month’s sales)
FG- 6/30 = 6,000 + 20% (30,000) = 12,000 units

b. Cagayan Corporation
Budgeted Raw Materials Purchases
For The Second Quarter, April-June, 20__

April May June Total

Budgeted Production (units) 101,600 87,400 42,000 231,000
x Standard materials / unit 4 lbs. 4 lbs. 4 lbs. 4 lbs.
Materials used (lbs.) 406,400 349,600 168,000 924,000
Add: Materials inventory – ending
(1/4 x next month’s sales) 87,400 42,000 30000(1) 30,000
Total materials 493,800 391,600 198,000 954,000
Less: Materials inventory - beginning 60,000 87,400 42,000 60,000
Budgeted materials purchase (in lbs.) 433,800 304,200 156,000 894,000

(1)
Materials inventory - 6/30 = 30,000 x 4 lbs. x 1/4 = 30,000 lbs.

[Problem 4].
a. JVC Company
 Budgeted Production and Direct Labor Costs
For The First Quarter, January – March, 20B

January February March Total

Budgeted sales 10,000 12,000 8,000 30,000
Add: Finished goods - ending (1) 16,000 12,500 13,500 13,500
Total goods 26,000 24,500 21,500 43,500
Less: Finished goods - beginning 16,000 16,000 12,500 16,000
Budgeted production 10,000 8,500 9,000 27,500
x DLH per unit 2 2 2 2
Budgeted DLH 20,000 17,000 18,000 55,000
x DL rate per hour P 8 P 8 P 8 P 8
Budgeted direct labor wages 160,000 136,000 144,000 440,000
Pensions contribution (P0.25 / hr) 5,000 4,250 4,500 13,750
Workers' compensation insurance
(P0.10 per hour) 2,000 1,700 1,800 5,500
Employee medical insurance
(P0.40 per hour) 8,000 6,800 7,200 22,000
Social security and employment taxes
(10% of wages) 16,000 13,600 14,400 44,000
Budgeted direct labor costs P 191,000 P 162,350 P 171,900 P 525,250

(1)
FG – ending = (100% x next month’s sales) + (50% x 2nd month’s sales)

b. 1. Budgeted production - also used in direct materials purchase budget, factory overhead
budget and master budget
2. Budgeted direct labor hours - used in budgeted variable factory overhead and master
budget

[Problem 5]
a. Bacolod Corporation
Budgeted Production
For The Third Quarter, July – September, 20A
July August September Total
Budgeted sales (units) 5,000 6,000 7,000 18,000
Add: Finished goods inventory - ending
(80% x next month's sales) 4,800 5,600 5,600 5,600
Total goods available for sale 9,800 11,600 12,600 23,600
Less: Finished goods inventory - beginning 5,600 4,800 5,600 5,600
Budgeted production (units) 4,200 6,800 7,000 18,000

b. Bacolod Corporation
Budgeted Direct Materials Budget
For The Third Quarter, July September, 20A
 Materials
101 211 242
Budgeted production 18,000 18,000 18,000
x Standard materials per unit 6 4 2
Materials requirement 108,000 72,000 36,000
Add: Materials inventory - ending (1) 42,000 28,000 14,000
Total materials 150,000 100,000 50,000
Less: Materials inventory - beginning 35,000 32,000 14,000
Materials purchase (units) 115,000 68,000 36,000
x Materials cost per unit P 0.40 P 3.60 P 1.20
Materials purchase (pesos) P 46,000 P 244,800 P 43,200
(1)
Mat. Inventory – 7/30
101 = 7,000 x 6 = 42,000 units
211 = 7,000 x 4 = 28,000 units
242 = 7,000 x 2 = 14,000 units

c. Bacolod Corporation
Budgeted Direct Labor Costs
For The Third Quarter, July – September, 20A

Forming Assembly Finishing Total

Budgeted production (units) 18,000 18,000 18,000
X Standard hours per unit 0.80 2.00 0.25
Budgeted direct labor hours 14,400 36,000 4,500 54,900
X Direct labor rate per hour P 8.00 P 8.00 P 8.00
Budgeted direct labor costs P115,200 P198,000 P 27,000 P340,000

d. Bacolod Corporation
Budgeted Factory Overhead
For The Third Quarter, July – September, 20A
Flexible
Rate Budget
Variable overhead per unit (33,000 units)
Supplies P 2.20 P 72,600
Electricity 1.00 33,000
Indirect labor 2.00 66,000
Other 0.80 26,400
Total variable overhead P 6.00 198,000

Fixed overhead
Supervision 30,000
Property tax 3,600
Depreciation 33,200
Other 16,200
Total fixed overhead 83,000
 Budgeted factory overhead P 281,000

[Problem 6]
a. Ilocos Corporation
Sales Budget
For The Year Ended, December 31, 20B

Thingone Thingtwo
Budgeted sales (units) 60,000 40,000
x Unit sales price P 70 P 100
Budgeted sales (pesos) P 4,200,000 P 4,000,000
b. Ilocos Corporation
Budgeted Production
For The Year Ended, December 31, 20B
Thingone Thingtwo
Budgeted sales (units) 60,000 40,000
Add: Finished goods inventory - 01/01 20,000 8,000
Total goods available for use 80,000 48,000
Less: Afinished good inventory - 12/31 25,000 9,000
Budgeted production (units) 55,000 39,000
c. Ilocos Corporation
Budgeted Raw Materials Purchases
For the Year Ended, December 31,20B
Material
A B C
Budgeted materials need
Thingone (55,000 x 4 lbs.) 220,000lbs.
(55,000 x 2lbs.) 110,000lbs.
Thingtwo (39,000 x 4 lbs.) 156,000
(39,000 x 2lbs.) 78,000
(39,000 x 1lb.) 39,000lbs.
Total materials need 376,000 188,000 39,000
Add: Materials inventory - 12/31 36,000 32,000 7,000
Total 412,000 220,000 46,000
Less: Materials inventory - 01/01 32,000 29,000 6,000
Materials purchases (lbs.) 380,000 191,000 40,000
x Materials cost per lb. P 8P 5P 3
Budgeted materials purchases (pesos) P 3,040,000 P 955,000 P 120,000

d. Ilocos Corporation
Budgeted Direct Labor Cost Budget
For The Year ended, December 31, 20B
Thingone Thingtwo
Budgeted production (units) 55,000 39,000
x No. of hours per unit 2 3
Direct labor hours 110,000 117,000
x Standard DL rate per hour P 8 P 9
Budgeted direct labor cost P 880,000 P 1,053,000
e. Ilocos Corporation
Budgeted Finished Goods Inventory – 12/31
December 31, 20B
Thingone Thingtwo
Finished goods inventory - 12/31 25,000 9,000
x Unit costs:
Materials [(4 x P8) + (2 x P5)] P 42
[(5 x P8) + (3 x P5) + 1 x P3)] P 58
Direct labor (2 x P8) 16
(3 x P9) 27
Applied FOH (2 x P2) 4
( 3 x P2) 6
Total unit costs 62 91
Budgeted finished goods inventory - 12/31 P 1,550,000 P 819,000

[Problem 7]
a. Sorsogon Corporation
Flexible Budgets

Machine Hours
Rate 6,000 7,000 8,000 9,000
Variable costs
Direct materials (P2 x 4) P8.00/MH P 48,000 P 56,000 P 72,000 P 176,000
Direct labor 1.50/MH 9,000 11,250 12,000 13,500
Supplies 0.80/MH 4,800 5,600 6,400 7,200
Utilities 1.20/MH 7,200 8,400 9,600 10,800
Maintenance 0.30/MH 1,800 2,100 2,400 2,700
Sub-total P11.80/MH 70,800 83,350 102,400 210,200
Fixed costs
Utilities 4,000 4,000 4,000 4,000
Maintenance 6,000 6,000 6,000 6,000
Depreciation 12,000 12,000 12,000 12,000
Sub-total 22,000 22,000 22,000 22,000
Budgeted total costs P 92,800 P 105,350 P 124,400 P 232,200
b. Variable costs (7,000 MH x P11.80) P 82,600
Fixed costs 22,000
Budgeted cost – 7,000 MH P104,600

c. Variable costs (8,000 MH x P11.80) P 94,400

Fixed costs 22,000
Budgeted costs – 8,000 MH (standard) P104,600
d. Actual manufacturing costs P 61,200
Less: Standard manufacturing costs 104,600
Manufacturing variance P(43,400) F

[Problem 8]
Abra Company
Schedule of Accounts Receivable Collections
July – September 20__

Credit
Month of Sale Sales July August September Total
May P 550,000 P 55,000 P 55,000
June 600,000 180,000 P 60,000 240,000
July 800,000 188,160 240,000 P 80,000 796,160
288,000
August 900,000 211,680 210,000 745,680
324,000
September 1,000,000 235,200 595,200
360,000
Budgeted collections from customer P 711,160 P 835,680 P 885,200 P 2,432,040

[Problem 9]
1. May sales (P150,000 x 20%) P 30,000
April sales (P180,000 x 50%) 90,000
March sales (P100,000 x 25%) 25,000
May collections P 145,000

2. February sales (P160,000 x 5%) P 8,000

March sales (P100,000 x 30%) 30,000
April sales (P180,000 x 80%) 144,000
Accounts receivable - 4/30 P 182,000

3. February sales (P160,000 x 5%) P 8,000

March sales (P100,000 x 5%) 5,000
April sales (P180,000 x 30%) 54,000
May sales (P150,000 x 80%) 120,000
Accounts receivable - 5/31 P 187,000

4. Steps to reduce the balance in accounts receivable:

a. Shorter credit period
a1. Risk. Customer, especially those who have been accustomed with larger and
longer credit term, may negatively react and look for a new supplier that
will offer them a longer credit period so as not to strain their working
capital requirement.
a2. Advantage.It would reduce investment in accounts receivable balance, bad debts,
collection costs and would increase income on investment.
 b. Strengthen collection policies:
b1. Risk. Some customers may have an operating cycle longer than the offered
credit terms and may not have the ability to meet accelerated payments.
b2. Advantage.Increase cash inflows.

[Problem 10]
Lantoting Company
Budgeted Cash Payments to Merchandise Supplies
For the Month of May, 20__

May April
Budgeted sales (in units) 10,000 9,000
Add: Finished goods inventory - 5/1
(20% x 10,000) 2,000 1,800 (20% x 9,000)
Total goods available for sale 12,000 10,800
Less: Finished goods inventory - 5/31
(20% x 12,000) 2,400 2,000
Budgeted production 9,600 8,800
x Standard materials per unit 3 3
Materials used 28,800 26,400
Add: Materials inventory 5/1
(40% x 28,800) 11,520 10,560 (40% x 26,400)
Total materials 40,320 36,960
Less: Materials inventory - 5/31
(40% x 12,200 units x 3 units) 14,640 11,520
Materials purchase (units) 25,680 25,440
x Materials cost per unit P 20 P 20
Budgeted May purchases P 513,600 P 508,800

Payments to:
April purchases (P508,800 x 10/30 x 98%) P 166,208
May purchases (P513,600 x 20/30 x 98%) 335,552
P 501,760

[Problem 11] Cash paid for purchases in July = ?

June July
Budgeted sales (units) 50,000 30,000
Add: Finished goods inventory - beginning 5,000 3,000
Total goods for sale 55,000 33,000
Less: Finished goods inventory - ending 3,000 3,000
Budgeted production 52,000 30,000
x Standard materials per unit 3 3
Materials used 150,000 90,000
Add: Materials inventory - beginning 20,000 14,000
Total materials 170,000 104,000
 Less: Materials inventory - ending 14,000 11,000
Materials purchase (units) 156,000 93,000
x Standard materials per unit P 5 P 5
Materials purchase (pesos) P 780,000 P 465,000

June purchases paid in July (P 780,000 x 1/3 x 98%) P 254,800

July purchases paid in July (P 465,000 x 2/3 x 98%) 303,800
Cash payments to merchandise suppliers – July P 558,600

[Problem 12]
a. Budgeted cash disbursements in June and July:
June July
Materials

Current month (P 243,600 x 54%) P 131,544 P 132,408(P 245,000 x 54%)

1-month prior (P225,000 x 46%) 103,500 112,056(P 243,600 x 46%)
Wages and salaries 38,000 38,000
Marketing, general and administrative expenses
Current month (P49,300 x 54%) 26,622 28,080 (P52,000 x 54%))
1-month prior (P51,550 x 46%) 23,713 22,678 (P49,300 x 46%))

Budgeted cash disbursements P 323,379 P 333,222

1)
May June July
Materials used (units) 11,900 11,400 12,000
Materials inventory - ending
(130% x next month’s production
requirements) 14,820 15,600
(12,200 x 130%) 15,860
Materials inventory - beginning
(130% x 11,900) (15,470) (14,820) (15,600)
Materials purchases (units) 11,250 13,180 12,260
x Cost of materials per unit P 20 P 20 P 20
Budgeted materials purchases (pesos) P 225,000 P 243,600 P 245,200

2) M, G and AE = (15% x sales) – P 2000

May = (15% x P 357,000) – P 2,000 = P 51,550
June = (15% x P 342,000) – P 2,000 = P 49,300
July = (15% x P 360,000) – P 2,000 = P 52,000

b. Budgeted cash collections in May and June:

May June
From March sales (P 354,000 x 9%) P 31,860 P -
From April sales (P 363,000 x 60% x 97%) 211,266 33,670 (P363,000 x 9%)
(P 363,000 x 25%) 90,750
From May sales (P357,000 x 60% x 97%) 207,774
(P357,000 x 25%) 89,250
Collections from customers P333,876 P329,694

c. Materials purchases in units in July is 13,840 units.

[Problem 13]
V. jovi Band company
Cash Budget
For The Quarter Ending, March 31, -
January February March Total
Collections from sales
January sales 84,672 108,000 136,800 351,072
21,600
February sales 104,760 135,000 266,760
27,000
March sales 111,744 140,544
28,800

Total collections 106,272 239,760 412,344 758,376

Payments:
Materials supplies 89,200 60,400 65,600 215,200
Direct labor (Bud, Prod x P 30) 73,800 90,600 98,400 262,800
Variable OH (Bud. Prod x P 15) 36,900 45,300 49,200 131,400
Fixed OH (5000 x P 25) 125,000 125,000 125,000 375,000
Var. expenses (Sales x 11) 26,400 33,000 35,200 94,600
Fixed expenses (P 12000 x P5000) 17,000 17,000 17,000 51,000
Total 368,300 371,300 390,400 1,130,000
Net operating cash inflows (outflows) (262,028) (131,540) 21,944 (371,624)
Investing and financing activities:
C. Salonga investment 50,000 - - 50,000
Bank loan 150,000 - - 150,000
Acquisition of assets (200,000) - - (200,000)
Interest payments (3,000) (3,000) (3,000) (9,000)
Principal payments - - (30,000) (30,000)
Net investing and financing activities (3,000) (3,000) (33,000) (39,000)
Net cash inflows (outflows) (265,028) (134,340) (11,056) (410,624)
Add: Cash balance, beginning 0 10,000 10,000 0
Cash balance , ending, before
Financing (265,028) (124,540) (1,056) (410,624)
Borrowings 275,028 134,540 11,056 420,624
Cash balance - end P 10,000 P 10,000 P 10,000 P 10,000

Schedules:
1. January February March
Budgeted sales (@ 150) 2,400 3,000 3,200
Finished goods inventory - ending
[100 + (10% x next month's sales)] 400 420 500
Finished goods inventory - beginning
[100 + (10% x 24,000)] (340) (400) (420)
Budgeted production 2,460 3020 3,280

2.
Budgeted materials purchases (units)
(2460 + 2000) 4,460 3,020 3,280
x Materials cost/unit P 20 P 20 P 20
Budgeted materials purchase (pesos) P 89,200 P 60,400 P 65,600

[Problem 14]
a. Schedule of cash collections in September:
July credit sales (P 400,000 x 8%) P 32,000
August credit sales (P 500,000 x 70%) 350,000
 September credit sales (P 580,000 x 20%) 116,000
September cash sales 280,000
September collections P 778,000

b. Schedule of payments to suppliers in September:

August purchases P 105,000
September purchases (P 250,000 x 25%) 62,500
September payments to suppliers P 167,500

c. Isabela Corporation
Cash budget
For The Month of September, 2000
Cash balance, Sept. 01 P 80,000
Add: Cash collections from sales 778,000
Total cash 858,000
Less: Payments:
To merchandise suppliers P 167,500
Selling and administrative expenses 80,000
Dividends 40,000 287,500
Cash balance, Sept. 30 P 570,500

[Problem 15]

1. Cricket Company
Cash Budget
For The Month Ended, July 30, 20__

Cash balance, July 1 P 5,000

Add: Collections from customers:
June sales (P 30,000 x 48%) P 14,400
July sales (P 40,000 x 50%) 20,000 34,400
Total cash 39,400
Less: Payments:
Merchandise suppliers
June purchase (P10,000 x 50%) P 5,000
July purchase (P 15,000 x 50%) 7,500 12,500
Marketing and administrative expenses 10,000
Dividends 15,000 37,500
Cash balance before financing 1,900
Add: Borrowings (P 5,000 – 1,900) 3,100
Cash balance, July 31 P 5,000
 2. Financial actions to be taken:
a. Find ways to reduce cost and expenses
b. Find ways to increase sales

[Problem 16]
a. La Union Corporation
Budgeted Cash Collections
October – December 2000

Month of sales Amount October November December Total

Previous to October P 245,000 P 210,000 P 30,000 P 240,000
October sales 1,050,000 315,000 630,000P 73,500 1,018,000
November sales 900,000 270,000 540,000 810,000
December sales 850,000 75,000 75,000
Collections from
customers P 525,000 P 930,000 P 688,500 P2,143,500

b. La Union Corporation
Cash Budget
For The Fourth Quarter, October – December 2000

October November December Total

Collections from customers P 525,000 P 930,000 P 688,500 P 2,143,500
Payments:
Merchandise purchases 520,000 720,000 620,000 1,860,000
Payroll 120,000 110,000 115,000 345,000
Lease payments 20,000 20,000 20,000 60,000
Advertising 70,000 80,000 80,000 230,000
Equipment purchases 30,000 - - 30,000
Total 760,000 930,000 835,000 2,525,000
Operating inflows (outflows) (235,000) 0 (146,500) (381,500)
Proceeds of loan 300,000 - - 300,000
Interest payment (12,000) (12,000) (12,000) (36,000)
Net cash inflows (outflows) 53,000 (12,000) (158,500) (117,500)
Cash balance - beginning 250,000 303,000 291,000 250,000
Cash balance - ending P 303,000 P 291,000 P 132,500 P 132,500

[Problem 17]
a. Collections from customers – July 2007
Cash sales P 350,000
July sales [(P 1,500,000 – P 350,000) x 70%] 805,000
June sales 420,000
July collections P 1,575,000
b. Cash payments to suppliers – July 2007
July purchases (P 800,000 x 40%) P 320,000
June purchases 280,000
July payments to suppliers P 600,000

c. Ilocos Norte Corporation

Cash Budget
For The Month Ended July 31, 2007

Cash balance, July 1 P 80,000

Add: Collections from customers P 1,575,000
Other revenues 30,000
Bank borrowings 150,000 1,755,000
Total cash available for use 1,835,000
Less: Payments
Merchandise suppliers 600,000
Operating expenses (1) 316,000
Note payable paid
Equipment purchases 60,000
Interest 2,000 1,178,000
Cash balance, July 31 P 657,000

(1)
Operating expenses incurred P 320,000
Accrued expenses – beginning 45,000
- end (60,000)
Prepaid expenses – beginning (23,000)
- end 34,000
Operating expenses paid P 316,000

d. Ilocos Norte Corporation

Income Statement
For The Month Ended, July 31, 2007

Sales P 1,500,000
Less: Cost of goods sold:
Inventory, July 1 P 350,000
Add: Purchases 800,000
Total goods available for use 1,150,000
Less: Inventory, July 31 400,000 750,000
Gross profit 750,000
Less: Operating expenses 320,000
Depreciation expense 15,000 335,000
Operating Income 415,000
Add: Other revenues (1) 26,500
Interest expense (2,000) 24,500
Net Income P 439,500
 (1)
Cash received form other revenues P 30,000
Accrued income – July 1 (12,000)
- July 31 14,500
Deferred revenues – July 1 3,000
- July 31 (9,000)
Other revenues earned P 26,500

[Problem 18]
a and b
(Revenues) (Expenses)
a b
Revenues earned/Expenses incurred P 120,000 P 90,000
Accruals – beginning 23,000 12,000
- ending (40,000) (15,000)
Prepayments – beginning (22,000) (9,000)
- ending 8,000 11,000
Cash received/cash paid P 89,000 P 89,000

[Problem 19]
Patz Company
Budgeted Income Statement
For The Second Quarter Ended, June 30, 20xx

Sales (P 500,000 + P 1,000,000) P 1,500,000

Less: Cost of goods sold 900,000
Gross profit 600,000
Less: Operating expenses:
Variable marketing P 150,000
Fixed marketing 50,000
Fixed administrative 40,000
Doubtful accounts (2% x 1.5 million) 30,000
Depreciation expense (P 800,000/20) 40,000 310,000
Net income P 290,000
[Problem 20]
Mexia Inc.
Budgeted Income Statement
For The Year Ended, December 31, 2007

Sales (P 9,000 x 110% x 105%) P 10,395

Less: Cost of goods sold (P 6,000 x 106% x 105%) 6,678
Gross profit 3,717
Less: Commercial expenses
Marketing P 780
Administrative (P 900 + P 420) 1,320 2,100
Operating income 1,617
Less: Interest expense [P 140 + 10% (P 300)] 170
Income before income tax 1,447
Less: Income tax 579
Net income P 868

[Problem 21]
 Easecom Company
Budgeted Income Statement
For The Year Ended, December 31, 2007
(in thousands)

Sales:
Equipment (P 6,000 x 110% x 106%) P 6,996
Maintenance contracts (P 1,800 x 106%) 1,908 P 8,904
Less: Cost of goods sold (P 4,600 x 110% x 103%) 5,212
Gross profit 3,692
Less: Operating expenses:
Marketing (P 600 + P 250) 850
Administration 900
Distribution (P 150 x 110%) 165
Customer maintenance (P 1,000 + P 300) 1,300 3,215
Operating income P 477

[Problem 22]
Mabuhay University
Motor Pool Division
Performance Report
For The Month of March 20xx
Actual Flexible Variance
Variable Costs Costs Budget UF (F)
Gasoline P 5,323.00 P 5,512.50 P (189.50)F
Oil, minor repairs, parts and supplies 380.00 378.00 2.00UF
Outside repairs 50.00 225.00 (175.00)F
Sub-total 5,753.00 6,115.50 (362.50)F

Fixed Cost
Insurance 525.00 500.00 25.00UF
Salaries and benefits 2,500.00 2,500.00 0.00
Depreciation 2,310.00 2,200.00 110.00UF
 Sub-total 5,335.00 5,200.00 135.00UF
Totals P 11,088.00 P 11,315.50 P (227.50)F
Cost per mile (Costs + 63,000 miles) P 0.1760 P 0.1796 P (0.0036)F
(1)
Gasoline = 63,000 x P1.40/16 = P 5,512.50
Oil, etc., = 63,000 x P 0.006 = P 378

[Problem 23]
a. Triple-F Health Club
Cash Budget
For The Year Ended October 31, 20C
(in thousands)
Receipts:
Annual membership fees (P 355 x 110% x 103%) P 402.2
Lesson and class fee (P 234 x 234/180) 304.2
Miscellaneous (P 2 x 2/1.5) 2.7 P 708.9
Payments:
Manager’s salary and benefits (P 36 x 115%) 41.4
Regular employees wages and benefits (P 190 x 115%) 218.5
Lesson and class employee wages and benefits
(P 195 x 234/180 x 115%) 291.5
Travel and supplies (P 16 x 125%) 20.0
Utilities (P 22 x 125%) 27.5
Mortgage interest (P360 x 9%) 32.4
Miscellaneous (P2 x 125%) 2.5
Equipment payable 10.0
Accounts payable for supplies and utilities 2.5
 Amortization of mortgage payable 30.0
Purchase of new equipment 25.0 701.3
Net cash inflows 7.6
Add: Cash balance - Oct. 31,20B 7.3
Cash balance - Oct. 31, 20C P 14.9

b. Problem(s) discloses by the prepared budget:

1. Incremental revenues are basically determined by the membership base, which
may be considered relatively non-controllable.
2. The presence of the mortgage payable and its attendant interest expense
fundamentally drain the cash position of the health club.
3. Possible areas for cost saving should be identified to compensate the
accelerating trend in costs and expenses.

c. Joy Tan, the club general manager, is correct that the board’s goals to purchase the
adjoining property in four or five years time is unrealistic. The adjoining property
costs P300,000 and would be requiring in nominal terms P60,000 annual savings in
the next five years. Considering that the recent net cash inflows from operations is
only P7,600 in 20C, the required P60,000 annual savings would be extremely
difficult for the business to achieve.