MANAGEMENT ACCOUNTING - Solutions Manual
CHAPTER 15
FUNCTIONAL AND ACTIVITY-BASED
BUDGETING
I.
Questions
1. No. Planning and control are different, although related, concepts.
Planning involves developing objectives and formulating steps to achieve
those objectives. Control, by contrast, involves the means by which
management ensures that the objectives set down at the planning stage are
attained.
2. Budgets have a dual purpose, for planning and for following up the
implementation of the plan. The great benefits from budgeting lie in the
quick investigation of deviations and in the subsequent corrective action.
Budgets should not be prepared in the first place if they are ignored,
buried in files, or improperly interpreted.
3. Two major features of a budgetary program are (1) the accounting
techniques which developed it and (2) the human factors which administer
it. The human factors are far more important. The success of a budgetary
system depends upon its acceptance by the company members who are
affected by the budget. Without a thoroughly educated and cooperative
management group at all levels of responsibility, budgets are a drain on
the funds of the business and are a hindrance instead of help to efficient
operations.
4. Manufacturing overhead costs are budgeted at normal operating capacity,
and the costs are applied to the products using a predetermined rate. The
predetermined rate is computed by dividing a factor that can be identified
with both the products and the overhead into the overhead budgeted at the
normal operating capacity. Budgets may also be used in costing products
in a standard cost accounting system.
5. The production division operates to produce the products that are sold.
Production and sales must be coordinated.
Products must be
manufactured so that they will be available to meet sales delivery dates.
Activity of the production division will depend upon the sales that can be
made. Also, the sales division is limited by the capabilities of the
production department in manufacturing products. Successful operations
depend upon a coordination of sales and production.
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Chapter 15 Functional and Activity-Based Budgeting
6. Labor hour required for production can be translated into labor pesos by
multiplying the number of hours budgeted by the appropriate labor rates.
The rates to be used will depend upon the rates established for job
classifications and the policy with respect to premium pay for overtime or
shift differences.
7. A long-range plan for the acquisition of plant assets is broken down and
entered in the current budget as the plan unfolds. The portion of the plan
which is to be executed in the next year is included in the budget for that
year.
8. A budget period is not limited to any particular unit of time. At a
minimum, a budget should cover at least one operating cycle. For
example, a budget should not cover a period when purchasing activity is
high and omit the period when sales volume and cash collection are
relatively high. The budget period should encompass the entire cycle
extending from the purchasing operation to the subsequent sale of the
products and the realization of the sales in cash. Ordinarily, a budget of
operations is prepared for a year which in turn is divided into quarters and
months. Long-term budgets, such as budgets for projects or capital
investments, may extend five to ten years or more into the future.
9. A rolling budget or a progressive budget or sometimes called continuous
budget, is a budget which is prepared throughout the year. As one month
elapses, a budget is prepared for one more month in the future. At any
one time for example, the company will have a budget for one year into
the future, when July of one year is over, a budget for the following July
will be added at the other end of the budget. This process of adding a new
month as a month expires is continuous.
10. Variances that are revealed by a comparison of actual results with a
budget are investigated if it appears that an investigation is warranted.
The investigation may show that stricter control measures are needed or
that some weaknesses in the operation should be corrected. It may also
reveal that the budget plan should be revised. The comparison is one step
in the control and direction of business operations.
11. A comparison of actual results with a budget can contribute information
that can be applied in the preparation of better budgets in the future.
Subsequent investigation of variances provides management with a better
knowledge of operations. This knowledge can be applied in the
preparation of more realistic budgets for subsequent fiscal periods.
12. A self-imposed budget is one in which persons with responsibility over
cost control prepare their own budgets, i.e., the budget is not imposed
from above. The major advantages are: (1) the views and judgments of
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Functional and Activity-Based Budgeting Chapter 15
persons from all levels of an organization are represented in the final
budget document; (2) budget estimates generally are more accurate and
reliable, since they are prepared by those who are closest to the problems;
(3) managers generally are more motivated to meet budgets which they
have participated in setting; (4) self-imposed budgets reduce the amount
of upward blaming resulting from inability to meet budget goals. One
caution must be exercised in the use of self-imposed budgets. The budgets
prepared by lower-level managers should be carefully reviewed to prevent
too much slack.
13. No, although this is clearly one of the purposes of the cash budget. The
principal purpose is to provide information on probable cash needs during
the budget period, so that bank loans and other sources of financing can
be anticipated and arranged well in advance of the actual time of need.
14. Zero-based budgeting requires that managers start at zero levels every
year and justify all costs as if all programs were being proposed for the
first time. In traditional budgeting, by contrast, budget data are usually
generated on an incremental basis, with last years budget being the
starting point.
15. A budget is a detailed quantitative plan for the acquisition and use of
financial and other resources over a given time period. Budgetary control
involves the use of budgets to control the actual activities of a firm.
16. 1. Budgets communicate managements plans throughout the
organization.
2. Budgets force managers to think about and plan for the future.
3. The budgeting process provides a means of allocating resources to
those parts of the organization where they can be used most
effectively.
4. The budgeting process can uncover potential bottlenecks before they
occur.
5. Budgets coordinate the activities of the entire organization by
integrating the plans of its various parts. Budgeting helps to ensure
that everyone in the organization is pulling in the same direction.
6. Budgets define goals and objectives that can serve as benchmarks for
evaluating subsequent performance.
17. A master budget represents a summary of all of managements plans and
goals for the future, and outlines the way in which these plans are to be
accomplished. The master budget is composed of a number of smaller,
specific budgets encompassing sales, production, raw materials, direct
labor, manufacturing overhead, selling and administrative expenses, and
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Chapter 15 Functional and Activity-Based Budgeting
inventories. The master budget generally also contains a budgeted income
statement, budgeted balance sheet, and cash budget.
18. The flow of budgeting information moves in two directionsupward and
downward. The initial flow should be from the bottom of the organization
upward. Each person having responsibility over revenues or costs should
prepare the budget data against which his or her subsequent performance
will be measured. As the budget data are communicated upward, higherlevel managers should review the budgets for consistency with the overall
goals of the organization and the plans of other units in the organization.
Any issues should be resolved in discussions between the individuals who
prepared the budgets and their managers.
All levels of an organization should participate in the budgeting process
not just top management or the accounting department. Generally, the
lower levels will be more familiar with detailed, day-to-day operating
data, and for this reason will have primary responsibility for developing
the specifics in the budget. Top levels of management should have a better
perspective concerning the companys strategy.
19. Budgeting can assist a company forecast its workforce staffing needs
through direct labor and other budgets. By careful planning through the
budget process, a company can often smooth out its activities and avoid
erratic hiring and laying off employees.
II. Matching Type
1.
2.
3.
4.
5.
C
H
E
F
I
6.
7.
8.
9.
10.
A
B
J
D
G
III. Exercises
Exercises 1 (Schedule of Expected Cash Collections)
Requirement 1
July
May sales:
P430,000 10%
June sales:
P43,000
15-4
August
September
Total
P
43,000
Functional and Activity-Based Budgeting Chapter 15
P540,000 70%, 10%
July sales:
P600,000 20%,
70%, 10%
August sales:
P900,000 20%, 70%
September sales:
P500,000 20%
Total cash collections
378,000
P54,000
432,000
120,000
420,000 P60,000
600,000
180,000
630,000
810,000
100,000
P654,000 P790,000
100,000
P1,985,000
P541,000
Notice that even though sales peak in August, cash collections peak in
September. This occurs because the bulk of the companys customers pay in
the month following sale. The lag in collections that this creates is even more
pronounced in some companies. Indeed, it is not unusual for a company to
have the least cash available in the months when sales are greatest.
Requirement 2
Accounts receivable at September 30:
P90,000
From August sales: P900,000 10%.......................................................................
From September sales: P500,000 (70% + 10%)...................................................
400,000
Total accounts receivable.........................................................................................
P490,000
Exercise 2 (Production Budget)
Budgeted sales in units
Add desired ending inventory*
Total needs
Less beginning inventory
Required production
July
30,000
4,500
34,500
3,000
31,500
August
45,000
6,000
51,000
4,500
46,500
Septembe
r
60,000
5,000
65,000
6,000
59,000
Quarter
135,000
5,000
140,000
3,000
137,000
* 10% of the following months sales
Exercise 3 (Materials Purchase Budget)
Quarter Year 2
15-5
Year 3
Chapter 15 Functional and Activity-Based Budgeting
First
60,000
3
180,000
Required production of calculators
Number of chips per calculator
Total production needschips
Production needschips
Add desired ending inventory
chips
Total needschips
Less beginning inventorychips
Required purchaseschips
Cost of purchases at P2 per chip
Second
90,000
3
270,000
Third
150,000
3
450,000
First
180,000
Second
270,000
Year 2
Third
450,000
54,000
234,000
36,000
198,000
P396,000
90,000
360,000
54,000
306,000
P612,000
60,000
510,000
90,000
420,000
P840,000
Fourth
100,000
3
300,000
Fourth
300,000
First
80,000
3
240,000
Year
1,200,000
48,000
48,000
348,000 1,248,000
60,000
36,000
288,000 1,212,000
P576,000 P2,424,000
Exercise 4 (Direct Labor Budget)
Requirement 1
Assuming that the direct labor workforce is adjusted each quarter, the direct
labor budget would be:
Units to be produced
Direct labor time per unit (hours)
Total direct labor hours needed
Direct labor cost per hour
Total direct labor cost
1st
2nd
3rd
4th
Quarter Quarter Quarter Quarter
5,000
4,400
4,500
4,900
Year
18,800
0.40 0.40 0.40 0.40 0.40
2,000
1,760
1,800
1,960
7,520
P11.00 P11.00 P11.00 P11.00 P11.00
P 22,000 P 19,360 P 19,800 P 21,560 P 82,720
Requirement 2
Assuming that the direct labor workforce is not adjusted each quarter and that
overtime wages are paid, the direct labor budget would be:
Units to be produced
Direct labor time per unit
(hours)
Total direct labor hours needed
Regular hours paid
Overtime hours paid
Wages for regular hours
(@ P11.00 per hour)
Overtime wages
(@ P11.00 per hour 1.5)
1st
2nd
3rd
4th
Quarter Quarter Quarter Quarter
5,000
4,400
4,500
4,900
Year
18,800
0.40
0.40
0.40
0.40
0.40
2,000
1,800
200
1,760
1,800
-
1,800
1,800
-
1,960
1,800
160
7,520
7,200
360
P19,800
P19,800
P19,800
P19,800
P79,200
2,640
5,940
3,300
15-6
Functional and Activity-Based Budgeting Chapter 15
Total direct labor cost
P23,100
P19,800
P19,800
P22,440
P85,140
Exercise 5 (Manufacturing Overhead Budget)
Requirement 1
Kiko Corporation
Manufacturing Overhead Budget
Budgeted direct labor-hours
Variable overhead rate
Variable manufacturing overhead
Fixed manufacturing overhead
Total manufacturing overhead
Less depreciation
Cash disbursements for
manufacturing overhead
1st
Quarter
5,000
x P1.75
P 8,750
35,000
43,750
15,000
2nd
Quarter
4,800
x P1.75
P 8,400
35,000
43,400
15,000
3rd
Quarter
5,200
x P1.75
P 9,100
35,000
44,100
15,000
4th
Quarter
5,400
x P1.75
P 9,450
35,000
44,450
15,000
Year
20,400
x P1.75
P 35,700
140,000
175,700
60,000
P28,750
P28,400
P29,100
P29,450
P115,700
Requirement 2
Total budgeted manufacturing overhead for the year (a)
Total budgeted direct labor-hours for the year (b)
Predetermined overhead rate for the year (a) (b)
P175,700
20,400
P 8.61
Exercise 6 (Selling and Administrative Budget)
Helene Company
Selling and Administrative Expense Budget
Budgeted unit sales
Variable selling and
administrative expense per
unit
Variable expense
Fixed selling and administrative
expenses:
Advertising
Executive salaries
Insurance
Property taxes
Depreciation
Total fixed selling and
administrative expenses
1st
Quarter
12,000
2nd
Quarter
14,000
3rd
Quarter
11,000
4th
Quarter
10,000
Year
47,000
x P2.75
P33,000
x P2.75
P 38,500
x P2.75
P 30,250
x P2.75
P 27,500
x P2.75
P129,250
12,000
40,000
12,000
40,000
6,000
12,000
40,000
12,000
40,000
6,000
16,000
16,000
6,000
16,000
16,000
48,000
160,000
12,000
6,000
64,000
68,000
74,000
74,000
74,000
290,000
15-7
Chapter 15 Functional and Activity-Based Budgeting
Total selling and administrative
expenses
Less depreciation
Cash disbursements for selling
and administrative expenses
101,000
16,000
112,500
16,000
104,250
16,000
101,500
16,000
419,250
64,000
P 85,000
P 96,500
P 88,250
P 85,500
P355,250
Exercise 7 (Cash Budget Analysis)
Cash balance, beginning
Add collections from customers
Total cash available
Less disbursements:
Purchase of inventory
Operating expenses
Equipment purchases
Dividends
Total disbursements
Excess (deficiency) of cash
available over disbursements
Financing:
Borrowings
Repayments (including
interest)
Total financing
Cash balance, ending
Quarter (000 omitted)
1
2
3
4
P9 * P 5 P 5
P 5
76
85 *
90
95
125 *
130
40 *
36
10 *
2 *
88
58
42
8
2
110
* 36
* 54 *
*
8 *
*
2 *
* 100
100
105
32 *
48
10
2 *
92
Year
P 9
391 *
400
166
180 *
36 *
8
390
(3)*
(15)
30 *
13
10
20 *
28
(25)
(25)
P 5
(7)*
(7)
P 6
(32)
(4)
P 6
0
8
P5
0
20
P 5
*Given.
IV. Problems
Problem 1 (Schedule of Expected Cash Collections and Disbursements)
Requirement 1
P7,400
September cash sales...............................................................................................
September collections on account:
July sales: P20,000 18%...................................................................................
3,600
August sales: P30,000 70%..............................................................................
21,000
September sales: P40,000 10%.........................................................................
4,000
15-8
Functional and Activity-Based Budgeting Chapter 15
Total cash collections...............................................................................................
P36,000
Requirement 2
Payments to suppliers:
August purchases (accounts payable)..................................................................
P16,000
September purchases: P25,000 20%.................................................................
5,000
Total cash payments................................................................................................
P21,000
Requirement 3
COOKIE PRODUCTS
Cash Budget
For the Month of September
P9,000
Cash balance, September 1......................................................................................
Add cash receipts:
Collections from customers..................................................................................
36,000
Total cash available before current financing...........................................................
45,000
Less disbursements:
Payments to suppliers for inventory.....................................................................
P21,000
Selling and administrative expenses.....................................................................
9,000 *
Equipment purchases...........................................................................................
18,000
Dividends paid.....................................................................................................
3,000
Total disbursements.................................................................................................
51,000
Excess (deficiency) of cash available over
disbursements......................................................................................................
(6,000)
Financing:
Borrowings..........................................................................................................
11,000
Repayments.........................................................................................................
0
Interest.................................................................................................................
0
Total financing.........................................................................................................
11,000
P5,000
Cash balance, September 30....................................................................................
* P13,000 P4,000 = P9,000.
Problem 2 (Production and Purchases Budget)
Requirement 1
Production budget:
July
15-9
August
Septembe
r
October
Chapter 15 Functional and Activity-Based Budgeting
Budgeted sales (units)
Add desired ending inventory
Total needs
Less beginning inventory
Required production
40,000
20,000
60,000
17,000
43,000
50,000
26,000
76,000
20,000
56,000
70,000
15,500
85,500
26,000
59,500
35,000
11,000
46,000
15,500
30,500
Requirement 2
During July and August the company is building inventories in anticipation of
peak sales in September. Therefore, production exceeds sales during these
months. In September and October inventories are being reduced in
anticipation of a decrease in sales during the last months of the year.
Therefore, production is less than sales during these months to cut back on
inventory levels.
Requirement 3
Raw materials purchases budget:
Required production (units)
Material P214 needed per unit
Production needs (lbs.)
Add desired ending inventory (lbs.)
Total Material P214 needs
Less beginning inventory (lbs.)
Material P214 purchases (lbs.)
July
43,000
3 lbs.
129,000
84,000
213,000
64,500
148,500
August
56,000
3 lbs.
168,000
89,250
257,250
84,000
173,250
Septembe
r
59,500
3 lbs.
178,500
45,750 *
224,250
89,250
135,000
Third
Quarter
158,500
3 lbs.
475,500
45,750
521,250
64,500
456,750
* 30,500 units (October production) 3 lbs. per unit= 91,500 lbs.; 91,500 lbs.
0.5 = 45,750 lbs.
As shown in requirement (1), production is greatest in September. However,
as shown in the raw material purchases budget, the purchases of materials is
greatest a month earlier because materials must be on hand to support the
heavy production scheduled for September.
Problem 3 (Cash Budget; Income Statement; Balance Sheet)
Requirement 1
Schedule of cash receipts:
15-10
Functional and Activity-Based Budgeting Chapter 15
P60,000
Cash salesJune.....................................................................................................
Collections on accounts receivable:
May 31 balance...................................................................................................
72,000
June (50% 190,000).........................................................................................
95,000
Total cash receipts...................................................................................................
P227,000
Schedule of cash payments for purchases:
P90,000
May 31 accounts payable balance...........................................................................
June purchases (40% 200,000).............................................................................
80,000
Total cash payments................................................................................................
P170,000
PICTURE THIS, INC.
Cash Budget
For the Month of June
Cash balance, beginning..........................................................................................
P 8,000
Add receipts from customers (above).......................................................................
227,000
Total cash available.................................................................................................
235,000
Less disbursements:
Purchase of inventory (above)..............................................................................
170,000
Operating expenses..............................................................................................
51,000
Purchases of equipment.......................................................................................
9,000
Total cash disbursements.........................................................................................
230,000
Excess of receipts over disbursements.....................................................................
5,000
Financing:
Borrowingsnote................................................................................................
18,000
Repaymentsnote...............................................................................................
(15,000)
Interest.................................................................................................................
(500)
Total financing.........................................................................................................
2,500
Cash balance, ending...............................................................................................
P 7,500
Requirement 2
PICTURE THIS, INC.
Budgeted Income Statement
For the Month of June
Sales........................................................................................................................
P250,000
Cost of goods sold:
P 30,000
Beginning inventory.............................................................................................
15-11
Chapter 15 Functional and Activity-Based Budgeting
Add purchases.....................................................................................................
200,000
Goods available for sale.......................................................................................
230,000
Ending inventory..................................................................................................
40,000
Cost of goods sold...............................................................................................
190,000
Gross margin...........................................................................................................
60,000
Operating expenses (P51,000 + P2,000)..................................................................
53,000
Net operating income...............................................................................................
7,000
Interest expense.......................................................................................................
500
Net income..............................................................................................................
P 6,500
Requirement 3
PICTURE THIS, INC.
Budgeted Balance Sheet
June 30
Assets
Cash........................................................................................................................
P 7,500
Accounts receivable (50% 190,000).....................................................................
95,000
Inventory.................................................................................................................
40,000
Buildings and equipment, net of depreciation
(P500,000 + P9,000 P2,000)............................................................................
507,000
Total assets..............................................................................................................
P649,500
Liabilities and Equity
Accounts payable (60% 200,000)........................................................................
P120,000
Note payable............................................................................................................
18,000
Share capital............................................................................................................
420,000
Retained earnings (P85,000 + P6,500)....................................................................
91,500
Total liabilities and equity........................................................................................
P649,500
Problem 4 (Sales, Production and Materials Purchases Budget)
Requirement 1
Nikko Manufacturing Company
Sales Budget
For the year ending December 31, 2005
Units
16,000
20,000
22,000
22,000
80,000
First quarter
Second quarter
Third quarter
Fourth quarter
Total
15-12
Amount
P 480,000
600,000
660,000
660,000
P2,400,000
Functional and Activity-Based Budgeting Chapter 15
Requirement 2
Nikko Manufacturing Company
Statement of Production Required
For 2005
Units to be sold
Add: Desired ending inventory (20%)
Total units required
Less: Beginning inventory
Units to be produced
1st
16,000
4,000
20,000
3,000
17,000
Quarter
2nd
3rd
20,000 22,000
4,400
4,400
24,400 26,400
4,000
4,400
20,400 22,000
4th
22,000
5,000
27,000
4,400
22,600
Total
80,000
5,000
85,000
3,000
82,000
Requirement 3
Nikko Manufacturing Company
Statement of Raw Materials Purchase Requirements
For 2005
Units required for production
Add: Desired ending inventory
Total units
Less: Beginning inventory
Raw Materials to be Purchased
1st
51,000
12,240
63,240
12,500
50,740
Quarter
2nd
3rd
61,200 66,000
13,200 13,560
74,400 79,560
12,240 13,200
62,160 66,360
4th
Total
67,800 246,000
15,000 15,000
82,800 261,000
13,560 12,500
69,240 248,500
Problem 5 (Schedule of Expected Cash Collections; Cash Budget)
Requirement 1
Schedule of expected cash collections:
From accounts receivable
From April sales:
20% 200,000
April
P141,000
40,000
15-13
Month
May
P 7,200
June
Quarter
P148,200
40,000
Chapter 15 Functional and Activity-Based Budgeting
75% 200,000
4% 200,000
From May sales:
20% 300,000
75% 300,000
From June sales:
20% 250,000
Total cash collections
150,000
P 8,000
150,000
8,000
225,000
60,000
225,000
50,000
P181,000 P217,200 P283,000
50,000
P681,200
Month
May
June
P 27,000 P 20,200
Quarter
P 26,000
60,000
Requirement 2
Cash budget:
Cash balance, beginning
Add receipts:
Collections from
customers
Total available
Less disbursements:
Merchandise purchases
Payroll
Lease payments
Advertising
Equipment purchases
Total disbursements
Excess (deficiency) of
receipts over
disbursements
Financing:
Borrowings
Repayments
Interest
Total financing
Cash balance, ending
April
P 26,000
181,000
207,000
217,200
244,200
283,000
303,200
681,200
707,200
108,000
9,000
15,000
70,000
8,000
210,000
120,000
9,000
15,000
80,000
224,000
180,000
8,000
15,000
60,000
263,000
408,000
26,000
45,000
210,000
8,000
697,000
(3,000)
20,200
40,200
10,200
(30,000)
(1,200)
(31,200)
P 20,200 P 9,000
30,000
(30,000)
(1,200)
(1,200)
P 9,000
30,000
30,000
P 27,000
15-14
Functional and Activity-Based Budgeting Chapter 15
Requirement 3
If the company needs a minimum cash balance of P20,000 to start each
month, the loan cannot be repaid in full by June 30. If the loan is repaid in
full, the cash balance will drop to only P9,000 on June 30, as shown above.
Some portion of the loan balance will have to be carried over to July, at which
time the cash inflow should be sufficient to complete repayment.
Problem 6 (Flexible Budget)
Summer Machine Company
Flexible Overhead Budget
Department 1
Machine Hours
Variable Overhead
Fixed Overhead
Total
100%
200,000
P1,300,000
300,000
P1,600,000
90%
180,000
P1,170,000
300,000
P1,470,000
Manufacturing Overhead rate per machine hour
Capacity
80%
160,000
P1,040,000
300,000
P1,340,000
70%
140,000
P 910,000
300,000
P1,210,000
60%
120,000
P 780,000
300,000
P1,080,000
70%
140,000
280,000
P 980,000
500,000
P1,480,000
60%
120,000
240,000
P 840,000
500,000
P1,340,000
P8.00
Summer Machine Company
Flexible Overhead Budget
Department 2
Direct Labor Hours
Machine Hours
Variable Overhead
Fixed Overhead
Total
100%
200,000
400,000
P1,400,000
500,000
P1,900,000
90%
180,000
360,000
P1,260,000
500,000
P1,760,000
Manufacturing Overhead rate per machine hour
Capacity
80%
160,000
320,000
P1,120,000
500,000
P1,620,000
P4.75
Problem 7 (Cash Budget with Supporting Schedules)
15-15
Chapter 15 Functional and Activity-Based Budgeting
1. Collections on sales:
July
August
Sept.
Quarter
Cash sales.....................................................
P8,000 P14,000 P10,000 P32,000
Credit sales:
May: P30,000 80% 20%.....................
4,800
4,800
June: P36,000 80% 70%,
20%.......................................................
20,160
5,760
25,920
July: P40,000 80% 10%,
70%, 20%..............................................
3,200 22,400
6,400
32,000
Aug.: P70,000 80% 10%,
70%.......................................................
5,600 39,200
44,800
Sept.: P50,000 80% 10%....................
4,000
4,000
Total cash collections....................................
P36,160 P47,760 P59,600 P143,520
2. a. Merchandise purchases budget:
July
August
Sept.
Oct.
Budgeted cost of goods sold..........................
P24,000 P42,000 P30,000 P27,000
Add desired ending inventory*.......................
31,500
22,500
20,250
Total needs....................................................
55,500
64,500
50,250
Less beginning inventory...............................
18,000
31,500
22,500
Required inventory purchases........................
P37,500 P33,000 P27,750
*75% of the next months budgeted cost of goods sold.
b. Schedule of expected cash disbursements for merchandise purchases:
July
Accounts payable, June 30............................
P11,700
July purchases...............................................
18,750
August purchases..........................................
September purchases.....................................
Total cash disbursements...............................
P30,450
15-16
August
P18,750
16,500
P35,250
Sept.
Quarter
P11,700
37,500
P16,500 33,000
13,875 13,875
P30,375 P96,075
Functional and Activity-Based Budgeting Chapter 15
3.
Ju Products, Inc.
Cash Budget
For the Quarter Ended September 30
July
Cash balance, beginning.............................
P8,000
Add collections from sales..........................
36,160
Total cash available................................
44,160
Less disbursements:
For inventory purchases.........................
30,450
For selling expenses...............................
7,200
For administrative expenses...................
3,600
For land..................................................
4,500
For dividends.......................................... 0
Total disbursements....................................
45,750
Excess (deficiency) of cash
available over disbursements..................
(1,590)
Financing:
Borrowings.............................................
10,000
Repayment.............................................0
Interest................................................... 0
Total financing...........................................
10,000
Cash balance, ending..................................
P8,410
* P10,000 1% 3 =
P4,000 1% 2 =
August
Sept.
P8,410 P8,020
47,760 59,600
56,170 67,620
35,250
11,700
5,200
0
0
52,150
30,375
8,500
4,100
0
1,000
43,975
96,075
27,400
12,900
4,500
1,000
141,875
4,020
23,645
9,645
4,000
0 (14,000)
0
(380)
4,000 (14,380)
P8,020 P9,265
P300
80
P380
V. Multiple Choice Questions
15-17
Quarter
P 8,000
143,520
151,520
14,000
(14,000)
(380)
(380)
P 9,265
Chapter 15 Functional and Activity-Based Budgeting
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
B
B
C
E
C
C
D
C
A
D
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
C
B
C
B
D
C
A
B
E
B
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
C
C
D
C
C
C
D
A
C
D
Supporting computations:
Questions 16 to 20:
January
Cost of sales
P1,400,000
Add: Desired Minimum Inventory
492,000
Total
1,892,000
Less: Beginning Inventory (1,400,000 x 0.3) (17)
420,000
Gross Purchases
(16)
1,472,000
Less: Cash discount
14,720
Net cost of purchases
P1,457,280
Payments of Purchases
60% - month of purchase
40% - following month
Total
P874,368
(18)
February
P1,640,000
456,000
2,096,000
492,000
1,604,000
16,040
P1,587,960
P 952,776
582,912
P1,535,688
(19)
Gross
Current months sales (with
discount) 35%
Current months sales (without
discount) 15%
Previous months sales (with
discount) 4.5%
Previous months sales (without
discount) 40.5%
February
Cash
Discount
Net
P595,000
P11,900
P583,100
255,000
255,000
67,500
1,350
66,150
607,500
15-18
607,500
Functional and Activity-Based Budgeting Chapter 15
P1,525,000
P13,250
(20)Total Collections in February
Add: Cash sales
Total
P1,511,750
P1,511,750
350,000
P1,861,750
(21)Estimated cash receipts
Collections from customers
Proceeds from issuance of common stock
Proceeds from short-term borrowing
Total
Less: Estimated cash disbursements
For cost and expenses
For income taxes
Purchase of fixed asset
Payment on short-term borrowings
Total
Cash balance, Dec. 31
P1,350,000
500,000
100,000
P1,950,000
P1,200,000
90,000
400,000
50,000
1,740,000
P 210,000
(22)Net income
P120,000
Add: Depreciation
65,000
Working capital provided from operations
Add: Increase in income taxes payable P 80,000
Increase in provision for doubtful
accounts receivable
45,000
Total
Less: Increase in accounts receivable
P 35,000
Decrease in accounts payable
25,000
Increase in cash
60,000
P250,000
(23)Cash Receipts for February 2005
From February sales (60% x 110,000)
From January sales
Total
P 66,000
38,000
P104,000
(24)Pro-forma Income Statement, February 2005
Sales
Cost of sales (75%)
Gross profit
P110,000
82,500
P
27,500
Less:
Operating expenses
Depreciation
15-19
16,500
5,000
P185,000
125,000
P310,000
Chapter 15 Functional and Activity-Based Budgeting
Bad debts
Net operating income
2,200
23,700
P 3,800
(25)Accounts Payable on February 28, 2005 will be the unpaid purchases in
February - (75% x P120,000) = P90,000.
Questions 26 to 29:
Net sales
Less: Cost of sales
Finished goods inventory, Jan. 1
Add: Cost of goods manufactured (Sch. I)
Total available for sale
Less: Finished goods inventory, Dec. 31
Gross Profit
Less: Operating and financial expenses
Selling
Administrative
Finance
Net income before taxes
*
P2,000,000
P 350,000
1,350,000 *
P1,700,000
400,000 1,300,000 (26)
P 700,000
P 300,000
180,000
20,000
500,000
P 200,000
Determined by working back from net income to sales.
Schedule I
Raw materials used
Raw materials inventory, Jan. 1
Add: Purchases
Total available
Less: Raw materials inventory, Dec. 31
Raw materials used
Direct labor
Manufacturing overhead
Total Manufacturing Cost
Add: Work-in-process inventory, Jan. 1
Total P1,670,000
Less: Work-in-process inventory, Dec. 31
Cost of goods manufactured
P 250,000
491,000 (29)
741,000
300,000
P 441,000
588,000
441,000 (28)
P1,470,000 (27)
200,000
320,000
P1,350,000
(30)Variable factory overhead
P150,000
48,000
P3.125
15-20
Functional and Activity-Based Budgeting Chapter 15
Fixed factory overhead
P240,000
48,000
5.000
Total factory overhead
P8.125
15-21
