Since 1977
MANAGEMENT ADVISORY SERVICES
MAS 2906 Short-term Budget
Budgeting is the process of preparing budgets, plans,
schedules, and forecasts, and the process requires
several important skills, including forecasting, a
knowledge of how activities affect costs, and the ability
to see how the organization's different activities fit
together.
Budgets aid in determining how to acquire resources,
and when and how these resources should be used. In
simple terms, a formal budgeting program is a key
ingredient to effective management. The role of
budgets includes coordination, problem signaling, and
problem-solving activities as organization control. The
plan for the coming year is called the master budget.
The master budget is known as the static budget.
The income statement part of the budget is called the
profit plan.
Purposes of budgeting:
1. develop a plan of action.
2. facilitate communication of the plan and
coordinate various views within an
organization.
3. allocate limited resources effectively and
efficiently.
4. sets benchmark to control profit and
operations.
5. evaluate performance and provide incentives
to managers.
6. provides resource information for decision
making.
7. uncovers potential bottlenecks before they
occur.
8. coordinates the activities of the entire
organization by integrating the plans and
objectives of the various parts.
Concepts
1. Budgets should start with a top-down strategic
plan that guides and integrates the whole
company and its individual budgets.
2. Budgeting is a management task, not a
bookkeeping task, and it requires a great deal
of planning and thoughtful input from a broad
range of managers in a company.
3. Budgets are used throughout managers’
planning, operating, and control activities.
4. Budgets are future oriented and make
extensive use of estimates and forecasts.
5. Flexible budgets are based on the actual
number of units produced rather than the
budgeted units of production.
6. Zero-based budgets require managers to build
budgets from the ground up each year.
7. Although the budgets are being prepared
annually, changing expectations often require
that budgets be revised frequently.
Factors to consider when developing a sales forecast.
• Past sales levels and economic trends for the
firm as well as for the industry as a whole
• General conditions in the economy such as
growth or decline, recession or boom, etc.
• External forces such as weather or potential
strikes
• Political or legal factors such as litigation or
new legislation
BOBADILLA/URO/TRINIDAD
Oct. 2020
• Pricing policies of the organization
• Advertising and promotion plans
• Competitors' actions
• Potential for new product lines
• Market research studies
Static versus Flexible Budgets
1. Static budgets are set at the beginning of the
period and remain constant. They are useful
for planning and operating purposes, but can
be problematic when used for control. Control
requires the comparison of actual outcomes
with desired outcomes. When static budgets
are used and actual sales are different from
budgeted sales, a comparison is inaccurate.
2. Flexible budgets take differences in cost due to
volume differences out of the analysis by
budgeting based on actual production. They
can be accurately used for control purposes
because any differences in cost caused by
differences in volume of production have been
removed.
Planning involves developing objectives and preparing
various budgets to achieve those objectives. Control is
the process of setting standards, receiving feedback on
actual performance, and taking corrective action
whenever actual performance deviates significantly from
planned performance. Budgets are the standards, and
they are compared with actual costs and revenues to
provide feedback.
The master budget is based on estimated sales and
production volume and is prepared before the budget
period begins. The flexible budget is based on actual
sales and production volume and is prepared after the
budget period ends.
Budget Slacks - occurs when subordinates (1) ask
for excess resources above and beyond what they
need to accomplish budget objectives and (2) distort
information by claiming they are not as efficient or
effective at what they do, thus lowering
management's performance expectations of them.
Types of Budgeting
A periodic budget is one that is prepared for a
specified period of time, usually one year. As each
budget period ends, the organization prepares a new
budget for the next one.
Continuous (perpetual or rolling) budgeting is a
process that plans for a specified period of time,
usually 1 year, and organizes a budget into budget
subintervals, usually a month or a quarter. As each
budget subinterval ends, the organization drops the
completed subinterval from the budget and adds the
next budget subinterval. This approach stabilizes
the planning horizon at one year.
Incremental budgeting is an approach to developing
appropriations for discretionary expenditures that
assumes that the starting point for each
discretionary expenditure item is the amount spent
on it in the previous budget.
Zero-Base Budgeting - requires managers to start at • Financial statement method is more flexible.
zero budget levels every year and justify all costs as More important, it allows different items to
if all programs were being proposed for the first grow at different rates.
time. This process differs from traditional budgeting, •
STRAIGHT PROBLEMS
in which changes in budgets from one year to the
next are subject to the greatest scrutiny.
Problem 1. The 2019 sales of Lion Company amounted
Authoritative budgeting occurs when superiors simply to P15 million. The dividend payout ratio is 40%. The
tell subordinates what their budgets will be. percent of sales in each balance sheet item that varies
stretch budgeting which means that the organization directly with sales are expected to be as follows:
attempts to reach much higher goals than those Current assets 15%
attained previously. Net fixed assets 35%
Participative budgeting involves a joint decision- Accounts payable & accrued
making process in which all parties agree about expenses 20%
setting budget targets. It involves the use of input Net profit rate 10%
from lower and middle.
Required:
Consultative budgeting occurs when managers ask
a. Suppose that in 2020 sales are expected to increase
subordinates to discuss their ideas but no joint by 15% percent over 2019 sales. How much
decision making occurs. additional (external) financing will be required?
b. What would happen to additional financing if Lion
Financial forecasting is looking ahead to develop a Company can increase its sales by 50% and the
financial plan for the future. It is very important for the payout ratio is maintained.
strategic growth of a firm. c. What would happen to additional financing
requirement if the payout ratio is raised to 60%?
Pattern in Financial Planning d. Compute the sustainable growth rate.

• Forecasting sales Problem 2. Black Company’s sales are forecasted to

• Projecting the assets and internally generated increase from P1M in 2015 to P2M in 2016. Hereunder
funds is the December 31, 2015, balance sheet:
• Projecting outside funds needed
• Deciding how to raise funds Cash P 100,000
Accounts receivable 200,000
Percentage of sales forecasting method is a simple but Inventories 200,000
practical procedure for forecasting financial statement Net fixed assets 500,000
variables (The “quick and dirty” approach). The Total assets P1,000,000
procedures are based on two assumptions: (a) that all
variables are tied directly with sales; and, (b) that the Accounts payable P 50,000
current levels of most balance sheet items are optimal for Notes payable 150,000
the current sales level. Accruals 50,000
Steps: Long-term debt 400,000
1. Identify assets and liabilities that will vary Common stock 100,000
spontaneously with sales. Retained earnings 250,000
2. Estimate the amount of net income that will be Total Liab. & Equity P1,000,000
retained.
3. Compute the amount of External Financing Needed Black’s fixed assets were used to only 50 percent of
(EFN) by subtracting increase in spontaneous capacity during 2015, buts its current assets were at
liabilities and income retained from increase in total their proper levels. All assets except fixed assets
financing required (increase in assets due to increase increase at the same rate as sales, and fixed assets
in sales). would also increase at the same rate if the current
excess capacity did not exist. Black’s after-tax profit
AFN = S x (SA/So) - S x (SL/So) – (ROS x 1 - Payout % margin is forecasted to be 5 percent, and its payout
x S 1) ratio will be 60 percent. What is Black’s additional
Where: SA/S0 = percentage relationship of funds needed for the coming year?
spontaneous assets (variable assets) to sales at period
zero. Problem 3. What is the forecast for July based on a
SL/S0 = percentage relationship of spontaneous three-month weighted moving average applied to the
liabilities (variable liabilities) to sales at period 0 following past demand data and using the weights: 4,
3,and 3? Show all of your computations for April through
Variables that affect the AFN July.
Higher dividend payout ratio? Increase AFN: Less
retained earnings. Month Demand Forecast
Higher profit margin? Decrease AFN: Higher
January 45,000
profits, more retained earnings.
Higher capital intensity ratio? Increase AFN: Need February 40,000
more assets for given sales. March 55,000
Pay suppliers in 60 days, rather than 30 days? April 60,000
Decrease AFN: Trade creditors supply more May 55,000
capital (i.e., L*/S 0 increases). June 70,000
July
“Percent of Sales Forecasting” vs. “Financial
Statement Forecasting”
Problem 4. Actual sales for January through April are
• Equation method assumes a constant profit
shown below.
margin, a constant dividend payout, and a
constant capital structure.

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 Actual Month Sales Purchases
Month Sales Forecast July P800,000 P400,000
August 840,000 410,000
January 30,000
September 900,000 380,000
February 34,000 October 720,000 390,000
March 35,000 November 780,000 420,000
April 32,000 December 950,000 360,000
May 1. Cash is collected from customers in the
following manner:
Use exponential smoothing with α = 0.4 to calculate Month of sale (2% cash discount) - 25%
smoothed averages and forecast sales for May from the Month following sale - 50%
above data. Two months following sale - 20%
Amount uncollectible - 5%
Problem 5. Lipa Corporation has the following 2. 60% of purchases are paid for in cash in the
budgeted sales for the next six-month period: month of purchase, and the balance is paid the
following month.
Month Unit Sales
June 120,000 Required:
July 150,000 a. Prepare a summary of cash collections for the 4th
August 200,000 quarter.
September 180,000 b. Prepare a summary of cash disbursements for the
October 210,000 4th quarter.
November 175,000
Problem 9. MedCo. produces and sells first aid kits.
There were 45,000 units of finished goods in inventory You have been asked to prepare a cash budget for
at the beginning of June. Plans are to have an January. The following information is provided:
inventory of finished products that equals 40% of the
unit sales for the next month. a. Cash in bank on January 1, P16,000.
b. Actual sales during the last quarter and projected
Two pounds of materials are required for each unit sales for January follow:
produced. Each pound of material costs P15.
Inventory levels for materials are equal to 25% of the Cash Credit
needs for the next month. Materials inventory on October P22,000 P41,000
June 1 was 65,000 pounds. November 19,000 38,000
December 16,000 45,000
Required: January 17,500 40,000
1. Prepare production budgets in units for July,
August, and September. Payments on credit sales are received 50 percent
2. Prepare a purchases budget in pounds for July in month of sale, 30 percent in the month
and August, and give total purchases in both following sale, and 15% and 5% in the second
pounds and pesos for each month. and third months, respectively.
c. Total administrative and selling expenses (all cash)
Problem 6. Deer Company has the following are P25,000.
information: d. Purchases are always paid 30 days after delivery.
Month Budgeted Sales Purchases for October, November and December
March 800,000 were P40,000, P51,000, and P38,500,
April 880,000 respectively.
May 920,000 e. Cash dividends to be paid by middle of January,
June 860,000 P28,000.
July 880,000 f. Any cash deficiency is compensated by short
borrowing. Assume that borrowing is in multiple of
The gross profit rate is 45% and the desired inventory P5,000.
level is 30% of next month's sales. g. Management desires a minimum cash balance of
P15,000.
Required: Prepare a purchase budget for April and May.
Problem 10. MULTIPLE CHOICE (DIY)
Problem 7. Baguio Manufacturing Co. needs to 1. Measuring the firm's performance against established
know its anticipated cash inflows for the next quarter objectives is part of which of the following functions?
by month. Cash sales are 10 percent of total sales a. Planning
each month. Historically, sales on account have been b. Controlling
collected as follows: 60 percent in the month of sale, c. Organizing
30 percent in the month after the sale, and the d. Staffing
remaining10 percent two months after the sale. Sales
for the quarter are projected as follows: April, 2. A formal budget program will almost always result
P900,000; May, P850,000,000; June, P950,000. in:
Accounts receivable on March 31 were P220,000. a. higher sales.
Required: b. more cash inflows than cash outflows.
1. Prepare a schedule of cash receipts for the next c. improved profits.
quarter by month. d. a detailed plan against which actual results can
2. What is the expected balance of accounts be compared.
receivable on June 30?
3. A distinction between forecasting and planning
Problem 8. The following information pertains to a. Is not valid because they are synonyms.
Amigo Corporation: b. Arise because forecasting covers the short
term and planning does not.

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 c. Is that forecasts are used in planning.
d. Is that forecasting is a management activity,
whereas planning is a technical activity.
4. A company's sales forecast would likely consider
all of the following factors except:
a. political and legal events.
b. advertising and pricing policies.
c. general economic and industry trends.
d. top management's attitude toward
decentralized operating structures.
5. Which one of the following is usually not cited as
being an advantage of a formal budgetary
process?
a. Forces management to evaluate the
reasonableness of assumptions used and goals
identified in the budgetary process.
b. Ensures improved cost control within the
organization and prevents inefficiencies.
c. Provides a formal benchmark to be used for
feedback and performance
d. Serves as a coordination and communication
device between management and subordinates.
6. When developing a budget, an external factor to
consider in the planning process is
a. A change to a decentralized management
system.
b. New product development.
c. The implementation of a new bonus program.
d. The merger of two competitors.
7. The primary reason that managers impose a
minimum cash balance in the cash budget is
a. because management needs discretionary cash
for unforeseen business opportunities.
b. managers lack discipline to control their
spending.
c. that it protects the organization from the
uncertainty of the budgeting process.
d. that it makes the financial statements look
more appealing to creditors.
8. A budget serves as a benchmark against which:
a. actual results can be compared.
b. allocated results can be compared.
c. actual results become inconsequential.
d. allocated results become inconsequential.
9. Which of the following statements best describes
the relationship between the sales-forecasting
process and the master-budgeting process?
a. The sales forecast is typically completed
approximately halfway through the master-
budget process.
b. The sales forecast is typically completed before
the master budget and has no impact on the
master budget.
c. The sales forecast is typically completed before
the master budget and has little impact on the
master budget.
d. The sales forecast is typically completed before
the master budget and has significant impact
on the master budget.
10. Chronologically, the last part of the master budget
to be prepared would be the
a. pro forma financial statements.
b. cash budget.
c. capital budget
d. production budget.
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11. Which of the following budgets is based on many
other master-budget components?
a. Direct labor budget.
b. Overhead budget.
c. Cash budget.
d. Selling and administrative expense budget.
12. Santa Fe Corporation has a highly automated
production facility. Which of the following correctly
shows the two factors that would likely have the
most direct influence on the company's
manufacturing overhead budget?
a. Sales volume and labor hours.
b. Contribution margin and cash payments.
c. Production volume and management
judgment.
d. Labor hours and management judgment.
13. For better management acceptance, the flow of
data to be used for budgeting should begin with
a. Accounting department
b. Lower levels of management
c. Top management
d. Budget committee
14. Slack in operating budgets
a. results from unintentional managerial acts.
b. makes an organization more efficient and
effective.
c. requires managers to work harder to achieve
the budget.
d. is greater when managers are allowed to
participate in the budgeting process.
15. Budget slack is a condition in which
a. demand is low at various times of the year.
b. excess machine capacity exists in some areas
of the plant.
c. there is an intentional overestimate of
expenses or an underestimate of revenues.
d. managers grant favored employees extra time
off.
16. The budgeting technique that is most likely to
motivate managers is
a. Top-down budgeting.
b. Program budgeting and review technique.
c. Zero-base budgeting.
d. Bottom-up budgeting.
17. Wilson Corporation is budgeting its equipment
needs on an on-going basis, with a new quarter
being added to the budget as the current quarter
is completed. This type of budget is most
commonly known as a:
a. capital budget.
b. rolling budget.
c. revised budget.
d. pro-forma budget.
18. A manufacturing company has prepared quarterly
budgets for the next 12 months. These budgets
anticipate steady decreases in the unit costs of a
new product. Accordingly, if unit costs for the
fourth quarter are materially lower than those for
the first quarter, but an unfavorable variance is
reported, the company is most likely using
a. Kaizen budgeting.
b. Activity-based budgeting.
c. Life-cycle budgeting.
d. Whole-life budgeting.
19. Which of the following is not a functional budget?
a. Research and development budget
b. Cash budget
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 c. Purchasing budget second month after sale. If sales for April, May,
d. Direct labor cost and June were P60,000, P80,000, and P70,000,
respectively, what were the firm's budgeted
20 A firm develops an annual cash budget in order to collections for June?
a. Support the preparation of its cash flow a. P21,000 c. P69,000
statement for the annual report. b. P60,000 d. P75,000
b. Ascertain which capital expenditure projects
are feasible and which capital expenditure 27. Vern's makes all sales on account, subject to the
projects should be deferred. following collection pattern: 20% are collected in
c. Determine the opportunity costs of alternative the month of sale; 70% are collected in the first
sales and production strategies. month after sale; and 10% are collected in the
d. Avoid the opportunity costs of noninvested second month after sale. If sales for October,
excess cash and minimize the cost of interim November, and December were P70,000, P60,000,
financing. and P50,000, respectively, what was the budgeted
receivables balance on December 31?
21. Coleman, Inc., anticipates sales of 50,000 units, a. P40,000 c. P49,000
48,000 units, and 51,000 units in July, August, b. P46,000 d. P59,000
and September, respectively. Company policy is to
maintain an ending finished-goods inventory equal 28. The following selected data pertain to Plaka
to 40% of the following month's sales. On the Corporation:
basis of this information, how many units would
the company plan to produce in August? Cash operating expenses P180,000
a. 46,800 c. 49,800 Depreciation 60,000
b. 49,200 d. 52,200 Merchandise purchases in July 560,000
Estd. payments in July for
22. Atlantic Co. used P200,000 of direct materials purchases:
during June. At June 30, Atlantic's direct materials In June 220,000
inventory was P30,000 more than it was at June 1. Prior to June 50,000
What were Atlantic's direct materials purchases In July 40%
during June?
a. P30,000 c. P170,000 July's cash disbursements are expected to be:
b. P200,000 d. P230,000 a. P404,000 c. P674,000
b. P464,000 d. P734,000.
23. An examination of Short Corporation's inventory
accounts revealed the following information: 29. Diego makes all purchases on account, subject to
the following payment pattern:
Raw materials, June 1: 46,000 units Paid in the month of purchase: 30%
Raw materials, June 30: 51,000 units Paid in the first month following purchase: 60%
Purchases of raw materials during June: 185,000 Paid in the second month following purchase: 10%
units
If purchases for January, February, and March
Short's finished product requires four units of raw were P200,000, P180,000, and P230,000,
materials. On the basis of this information, how respectively, what were the firm's budgeted
many finished products were manufactured during payments in March?
June? a. P69,000 c. P177,000
a. 45,000 c. 57,750 b. P138,000 d. P197,000
b. 47,500 d. 70,500
30. Brooklyn makes all purchases on account, subject
Northwest manufactures a product requiring 0.5 to the following payment pattern:
ounces of platinum per unit. The cost of platinum is Paid in the month of purchase: 30%
approximately P360 per ounce; the company Paid in the first month following purchase: 65%
maintains an ending platinum inventory equal to 10% Paid in the second month following purchase: 5%
of the following month's production usage. The
following data were taken from the most recent If purchases for April, May, and June were
quarterly production budget: P200,000, P160,000, and P250,000, respectively,
Planned Production what was the firm's budgeted payables balance on
July 1,000 June 30?
August 1,100 a. P175,000 c. P183,000
September 980 b. P179,000 d. P189,000

24. The cost of platinum to be purchased to support 31. Wolfe, Inc., began operations on January 1 of the
August production is: current year with a P12,000 cash balance. Forty
a. P195,840 c. P200,160 percent of sales are collected in the month of sale;
b. P198,000 d. P391,680 60% are collected in the month following sale.
Similarly, 20% of purchases are paid in the month
25. If it takes two direct labor hours to produce each of purchase, and 80% are paid in the month
unit and Northwest's cost per labor hour is P15, following purchase. The following data apply to
direct labor cost for August would be budgeted at: January and February:
a. P16,500 c. P33,000
b. P31,200 d. P34,800. January February
Sales P35,000 55,000
26. Quattro makes all sales on account, subject to the Purchases 30,000 40,000
following collection pattern: 30% are collected in Oper expenses 7,000 9,000
the month of sale; 60% are collected in the first
month after sale; and 10% are collected in the If operating expenses are paid in the month

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 incurred and include monthly depreciation charges inventory at 30,000 units and the ending
of P2,500, determine the change in Wolfe's cash inventory at 33,000 units. This suggests that
balance during February. a. February sales are budgeted at 10,000 units
less than March sales.
a. P2,000 increase. b. March sales are budgeted at 10,000 units less
b. P4,500 increase. than April sales.
c. P5,000 increase. c. February sales are budgeted at 3,000 units
d. P7,500 increase. less than March sales.
d. March sales are budgeted at 3,000 units less
The Grainger Company's budgeted income statement than April sales.
reflects the following amounts:
37. In preparing its cash budget for July, 2021, Art
Sales Purchases Expenses Company made the following projections
Jan P120,000 P78,000 P24,000 Sales P1,500,000
Feb 110,000 66,000 24,200 Gross Profit 25%
Mar 125,000 81,250 27,000 Decrease in inventories P 70,000
Apr 130,000 84,500 28,600 Decrease in accounts payable P
for inventories 120,000
Sales are collected 50% in the month of sale, 30% in
the month following sale, and 19% in the second For July, 2021, what were the estimated cash
month following sale. One percent of sales is disbursement for inventories?
uncollectible and expensed at the end of the year. a. P1,050,000 c. P1,175,000
b. P1,055,000 d. P 935,000
Grainger pays for all purchases in the month following
purchase and takes advantage of a 3% discount. The 38. Esterwood Hospital has provided you with the
following balances are as of January 1: following budget information for April:
Cash collections P876,000
Cash P88,000 April 1 cash balance 23,000
Accounts receivable* 58,000 Cash disbursements 978,600
Accounts payable 72,000
Esterwood has a policy of maintaining a minimum
*Of this balance, P35,000 will be collected in January cash balance of P20,000 and borrows only in P1,000
and the remaining amount will be collected in increments. How much will Esterwood borrow in
February. April?
a. P80,000
The monthly expense figures include P5,000 of b. P79,600
depreciation. The expenses are paid in the month c. P99,000
incurred. d. P100,000

32. Grainger's expected cash balance at the end of 39. When preparing the series of annual operating
January is: budgets, management usually starts the process
a. P87,000 c. P92,000 with the:
b. P89,160 d. P94,160 a. cash budget.
b. budgeted balance sheet.
33. Grainger's budgeted cash receipts in February are: c. sales budget.
a. P91,000 c. P113,640. d. production budget.
b. P113,090 d. P114,000
Questions 40 and 41 concern Paradise Company,
34. Grainger's budgeted cash payments in February which budgets on an annual basis for its fiscal year.
are: The following beginning and ending inventory levels
a. P75,660 c. P97,200 (in units) are planned for the fiscal year of July 1,
b. P94,860 d. P99,860 2019 through June 30, 2020.

35. Ebony Company has the following expected July 1, 2019 June 30, 2020
pattern of collections on credit sales: 70 percent Raw materiala 40,000 50,000
collected in the month of sale, 15 percent in the Work-in-process 10,000 10,000
month after the month of sale, and 14 percent in Finished goods 80,000 50,000
the second month after the month of sale. The a
Two (2) units of raw material are needed to produce
remaining 1 percent is never collected. At the end each unit of finished product.
of May, Ebony Company has the following
accounts receivable balances: 40. If Paradise Company plans to sell 480,000 units
during the 2019-2020 fiscal year, the number of
From April sales P21,000 units it would have to manufacture during the year
From May sales 48,000 would be:
a. 440,000 units
Ebony's expected sales for June are P150,000. b. 480,000 units
What were total sales for April? c. 510,000 units
a. P150,000 c. P70,000 d. 450,000 units
b. P72,414 d. P140,000
41. If 500,000 finished units were to be manufactured
36. Ball Company has a policy of maintaining an during the 2019-2020 fiscal year by Paradise
inventory of finished goods equal to 30 percent of Company, the units of raw material needed to be
the following month's sales. For the forthcoming purchased would be:
month of March, Ball has budgeted the beginning a. 1,000,000 units
b. 1,020,000 units

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 c. 1,010,000 units The company purchases 60% of its merchandise in the
d. 990,000 units month prior to the month of sale and 40% in the
month of sale. Payment for merchandise is made in
42. The Jung Corporation’s budget calls for the the month following the purchase.
following production: Other monthly expenses to be paid in cash are
Quarter 1 45,000 units P20,300.
Quarter 2 38,000 units Monthly depreciation is P20,000.
Quarter 3 34,000 units Ignore taxes.
Quarter 4 48,000 units
Each unit of product requires three pounds of Balance Sheet
direct material. The company’s policy is to begin October 31
each quarter with an inventory of direct material
equal to 30% of that quarter’s direct material Assets
production requirements. Budgeted direct material Cash P 27,000
purchases for the third quarter would be: Accounts receivable (net of
a. 114,600 pounds. allowance for uncollectible
b. 89,400 pounds. accounts) 79,000
c. 38,200 pounds. Inventory 101,400
d. 29,800 pounds. PPE, (net of P574,000
accumulated depreciation) 1,082,000
43. A continuous budget: Total assets P1,289,400
a. drops the current month or quarter and adds a
future month or a future quarter as the current Liabilities and Stockholders’
month or quarter is completed. Equity
b. presents a statement of expectations for a Accounts payable P 169,000
period but does not present a firm Common stock 740,000
commitment. Retained earnings 380,400
c. presents the plan for only one level of activity Total liabilities and
and does not adjust to changes in the level of stockholders’ equity P1,289,400
activity.
d. presents the plan for a range of activity so 46. Expected cash collections in December are:
that the plan can be adjusted for changes in a. P230,000 c. P233,400
activity. b. P184,000 d. P49,400

Question No. 44 through 46 are based on the following: 47. The cost of December merchandise purchases
Evita Company, a retailer of women’s fashions, has would be:
budgeted its activity for March. The budget information a. P141,700 c. P81,900
is presented below: b. P169,000 d. P149,500

I. Sales are P550,000. All sales are cash. 48. December cash disbursements for merchandise
II. Merchandise inventory on February 28 is P300,000 purchases would be:
III. Budgeted depreciation for March is P35,000. a. P141,700 c. P157,300
IV. Cash in bank on March 1 is P25,000. b. P149,500 d. P81,900
V. Selling and administrative expenses are budgeted at
P60,000 for March and are paid in 49. The excess (deficiency) of cash available over
cash. disbursements for December would be:
VI. The planned merchandise inventory on March 31 is a. P55,800 c. P93,700
P270,000. b. P37,900 d. P17,900
VII. The invoice cost for merchandise purchases
represents 75% of sales price. All 50. The cash balance at the end of December would
purchases are paid for in cash. be:
a. P180,500 c. P82,800
44. The budgeted cash receipts for March are: b. P153,500 d. P27,000
a. P412,500 c. P585,000 51. The accounts receivable balance, net of
b. P137,500 d. P550,000 uncollectible accounts, at the end of December
would be:
45. The budgeted cash disbursements for March are: a. P46,000 c. P43,700
a. P382,500 c. P472,500 b. P93,100 d. P81,300
b. P442,500 d. P477,500
52. Accounts payable at the end of December would
46. The budgeted net income for December is: be:
a. P107,500 c. P 42,500 a. P81,900 c. P59,800
b. P137,500 d. P 77,500 b. P141,700 d. P149,500

Use the following to answer questions 47-53: 53. Retained earnings at the end of December would
Guess Farm Supply is located in a small town in be:
Central Luzon. Data regarding the store's operations a. P380,400 c. P471,300
follow: b. P418,300 d. P466,400

Sales are budgeted at P260,000 for November,
P230,000 for December, and P210,000 for January.
Collections are expected to be 80% in the month of
sale, 19% in the month following the sale, and 1%
uncollectible.
The cost of goods sold is 65% of sales.
Use the following to answer questions 54-57:
Carter Lumber sells lumber and general building
supplies to building contractors in a medium-sized
town in Laguna. Data regarding the store's operations
follow:

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Sales are budgeted at P380,000 for November, Questions 59 and 60 are based on the following
P390,000 for December, and P400,000 for January. information.
Collections are expected to be 70% in the month of Berol Company, which plans to sell 200,000 units of
sale, 27% in the month following the sale, and 3% finished product in July and anticipates a growth rate
uncollectible. in sales of 5% per month. The desired monthly ending
The cost of goods sold is 65% of sales. inventory in units of finished product is 80% of the
The company purchases 80% of its merchandise in the next month's estimated sales. There are 150,000
month prior to the month of sale and 20% in the finished units in inventory on June 30.
month of sale. Payment for merchandise is made in Each unit of finished product requires 4 pounds of
the month following the purchase. direct materials at a cost of P1.20 per pound. There
Other monthly expenses to be paid in cash are are 800,000 pounds of direct materials in inventory on
P22,000. June 30.
Monthly depreciation is P20,000.
Ignore taxes. 59. Berol Company's production requirement in units
of finished product for the 3-month period ending
Balance Sheet September 30 is
October 31 A. 712,025 c. 638,000
B. 630,500 d. 665,720
Assets
Cash P 13,000 60. Assume Berol Company plans to produce 600,000
Accounts receivable (net of units of finished product in the 3-month period
allow. for uncollectible ending September 30, and to have direct materials
accounts) 77,000 inventory on hand at the end of the 3-month
Inventory 197,600 period equal to 25% of the use in that period. The
Property, plant and equipment estimated cost of direct materials purchases for
(net of P502,000 accum depr ) the 3-month period ending September 30 is
992,000 a. P2,200,000. c. P2,640,00
Total assets P1,279,600 b. P2,400,000 d. P2,880,000.

Liabilities and Stockholders’ 61. It is budgeting time for Del Co. The following
Equity assumptions were agreed upon for the next year after
Accounts payable P 240,000 a strategic planning session which covered a five-year
Common stock 780,000 horizon
Retained earnings 259,600 1. Sales is estimated to be at 70,000 units at its
Total liabilities and national selling price of P126.00. 75% of total
stockholders’ equity P1,279,600 sales are on credit. 1.5% of net sales is provided
for doubtful accounts.
54. The net income for December would be: 2. Sales discounts are given to various customers at
a. P114,500 c. P101,400 different rates and net to gross ratio is at 93%
b. P94,500 d. P82,800 3. Mark-up on merchandise is at 45% of invoice
cost. Beginning inventory is P80,900 and is
55. The cash balance at the end of December would expected to be reduced by P15,000 at the end of
be: the period.
a. P182,400 c. P13,000 4. Selling and administrative expenses is expected
b. P114,400 d. P195,400 to be 15% of gross sales.
5. Depreciation is computed at P500,000.
56. The accounts receivable balance, net of The projected operating income for the year is
uncollectible accounts, at the end of December a. P252,741 c. P296,841
would be: b. P252,341 d. P173,802
a. P105,300 c. P117,000
b P88,700 d. P207,900 62. A company had sales last year of P10 million, with net
income equal to 6% of sales. This year the sales are
Numbers 57 and 58 are based on the following data: expected to be P11.2 million. The accounts receivable
GLORIA CORP. has the following budget estimates for balance was P1.5 million at the end of last year. Using
its second year of operations: the percentage-of-sales method, the accounts
Projected sales – P3,500,000 receivable balance at the end of this year is estimated
Projected net income before tax – 12% of sales to be
Estimated selling and administrative expenses – 25% a. P1.573M c. P2.172M
of sales b. P1.68M d. P2.7M
Direct labor and factory overhead are budgeted at
70% of the total manufacturing cost. 63. A company had P500,000 of sales for the year just
Inventories are estimated as follows (in thousands): ended and is projecting sales of P600,000 for the
Raw Work in Finished coming year. For every P1 increase in sales, P0.38 of
material process goods additional financing is required for the purchase of
Beginning P220 P250 P350 additional assets. The projected profit margin is 20
Ending 270 300 420 percent, and 60 percent of profits will be retained for
reinvestment in the company. The amount of
57. The estimated cost of goods sold would be additional external financing needed by the company
a. P2,275,000 c. P2,325,000 in the coming year is
b. P2,205,000 d. P1,750,000 a. P0 c. P86,000
b. P38,000 d. P110,000
58. The estimated purchases of raw materials would
be 64. The capital intensity ratio is the:
a. P967,500 c. P697,000 a. ratio of total assets to total equity.
b. P732,500 d. P747,500

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 b. amount of fixed assets required to generate P1
in sales.
c. amount of total assets required to generate P1
in sales.
d. the amount of sales generated from every P1
in total assets.

65. Participation of line managers in the budgeting

process helps to create:
a. greater commitment
b. greater anxiety
c. more fraud
d. better past performance

- end of MAS 2906 -

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