SAINT THERESA COLLEGE OF TANDAG, INC.

TANDAG CITY

STRATEGIC BUSINESS ANALYSIS

BUDGETING MODULE

Budgets are plans expressed in quantitative form, primarily in financial expression

Sales budget
Sales indicate meeting customers’ wants, demands, need, desires, etc. It is the force that induces the creation of
business organization. It is the motive of business organization and the genesis of business planning, under normal
conditions.
Mathematically sales are affected by the unit sales price and quantity sold. The unit sales price is affected by cost,
competition, product substitutes, market trends, government regulations, demand and supply behaviour, and estimated
profit, among other things. The number of units sold is affected by the unit sales price.

Basically, there are three ways of making estimates for the sales budgets:
a. Statistical forecasting based on analysis of general business conditions, market conditions, product growth curves, etc.
b. Make an internal estimate by collecting the opinions of executives and sales staff.
c. Analyze the various factors that affect sales revenue and then predict the future behaviour of each of these factors.

Sample Problem 1. Estimated sales in units and in pesos.

The management of New Corporation is considering a three state economic conditions: strong, fair, and weak. Based on
some macro studies, it has been agreed that the economy in the coming year may be 40% strong, 50% fair, and 10%
weak. The projected number of units are 120,000 units, 90,000 units, and 50,000 units for strong, fair, and weak
economic conditions, respectively. The budgeted unit sales price given the estimates in units sold is P120. Five percent
of the gross sales are estimated to be uncollectibles.

Required: What are the budgeted units to be sold for the coming year? Budgeted amount of sales, net of doubtful
accounts?

Solutions/Discussions:
1. The budgeted sales in units shall be determined as follows:
Projected sales Budgeted
Economy in units Probability sales in units
A 120,000 40% 48,000
B 90,000 50% 45,000
C 50,000 10% 5,000
Total 93,000

2. The budgeted net sales in pesos shall be:

Budgeted sales in units 93,000
X unit sales price P120
Budgeted gross sales in pesos P11,160,000
Less: Allowance for doubtful accounts
(P11,160,000 x 5%) 558,000
Budgeted net sales in pesos P10,602,000

Production Budget
Budget production is based on budgeted sales and inventory policies. An inventory policy is normally based on the
number of units to be sold in the following period.
 Budgeted Sales x
Add: Finished goods invty – end x
Total GAS x
Less: Finished goods invty – beg x
Budgeted production x

Raw Materials Budget

The raw materials budget is based on budgeted production.

Budgeted raw materials used x (budgeted production x standard materials per unit)
Add: Mat. Invty – End x
Total materials for use x
Less: Mat. Invty – beg x
Budgeted raw mat. Purchases in units x
X materials cost per unit Px
Budgeted raw material purchases in pesos Px

Direct labor budget

Budgeted direct labor hours x (budgeted production x std. direct labor hour per unit)
X DL Rate per hour Px
Budgeted DL cost Px

Factory overhead budget

Budgeted variable overhead Px (budgeted production x std. variable OH rate/unit)
Budgeted fixed overhead x (Normal capacity x std. Fixed OH rate/unit)
Budgeted total overhead Px

Budgeted Statement of Cash Flows

Model 1 – Traditional Method Model 2 – Net Cash Flow Method

Cash balance – beg Px Cash inflow Px
Add: Cash receipts x Less: Cash outflows x
Total cash for use x Net cash inflows (outflows) x
Less: Cash payments x Add: Cash balance – beg x
Cash balance – end Px Cash balance-end Px

Accruals and Prepayments

Expenses paid would be computed as:

Operating expenses incurred Px
Add: Accrued expenses, beg Px
Prepaid expenses, end x x
Total
Less: Accrued expenses, end x
Prepaid expenses, beg. x x
Operating expenses paid Px
Income received is computed as follows:
Income earned Px
Add: Accrued income, beg. Px
Prepaid income, end x x
Total
Less: Accrued income, end x
Prepaid income, beg. x x
Income received Px

Sample Problem. Budgeted Sales and estimated collections from customers.

Charmaine Corporation made the following projections on its sales in the coming year 2020:

Projected units sold

Economy Q1 Q2 Q3 Q4 Probability
Good 74,000 92,000 80,000 102,000 50%
Fair 50,000 80,000 70,000 90,000 30%
Bad 40,000 50,000 45,000 60,000 20%

The unit sales price is expected to be constant at P20. All sales are made on credit. Receivables from customers are
collected 60% in the quarter of sales, 30% in the quarter following sales, and 8% in the second quarter following sale.
The remaining 2% is considered uncollectibles. The account receivables balance on December 31, 2019 is estimated to
be P640,000; 25% of which is coming from the 3rd quarter sales of 2019.

Required:
1. Schedule 1. Budgeted sales in units and in pesos per quarter and for the year 2020.
2. Schedule 2. Budgeted collections from customers per quarter and for the year 2020.
Solutions:
The estimated sales in units are computed by considering the probability of occurrence.

Expected units sold*

Q1 Q2 Q3 Q4
Good (projected sales x 50%) 37,000 46,000 40,000 51,000
Fair (projected sales x 30%) 15,000 24,000 21,000 27,000
Bad (projected sales x 20%) 8,000 10,000 9,000 12,000
Estimated unit sales (expected value) 60,000 80,000 70,000 90,000

*for example: Q1 (74,000 units x 50%) 37,000 units

(50,000 units x 30%) 15,000 units
(40,000 units x 20%) 8,000 units

Schedule 1. Budgeted Sales

Q1 Q2 Q3 Q4 Total
Budgeted sales in units 60,000 80,000 70,000 90,000 300,000
X units sales price P20 P20 P20 P20 P20
Budgeted sales in pesos P1,200,000 P1,600,000 P1,400,000 P1,800,000 P6,000,000
Schedule 2. Budgeted collections from customers.

From sales of credit sales Q1 Q2 Q3 Q4 Total

Q3, 2019 P1,600,000 P128,000 P128,000
Q4, 2019 1,200,000 360,000 P96,000 456,000
Q1, 2020 1,200,000 720,000 360,000 P96,000 1,176,000
Q2, 2020 1,600,000 960,000 480,000 P128,000 1,158,000
Q3, 2020 1,400,000 840,000 420,000 1,260,000
Q4, 2020 1,800,000 1,080,000 1,080,000
Budgeted collections from
Customers P1,208,000 P1,416,000 P1,416,000 P1,628,000 P5,668,000

BUDGETED PRODUCTION AND MATERIALS PURHASES.

Charmain Corporation has budgeted the sales of its product in 2020 up to the first quarter of 2021 as follows:

2019 1st quarter 60,000

2nd quarter 80,000
3rd quarter 70,000
4th quarter 90,000
2020 1st quarter 75,000

The company has a policy of maintaining finished goods inventory equal to 20% of the next quarter’s sales and materials
inventory of 30% of current quarter’s requirements. It takes 3 lbs. of material AX-23 to produce unit of product. The
materials inventory at the start of the year was recorded at 75,000 pounds.

Material AX-23 costs P1.20 per pound to purchase. The terms of the purchase is 2/30, n/45. The company pays 55% of
its purchases in the quarter of purchases and avail of the 2% trade discount. The remaining balance is paid in the
following quarter. The account payables at December 31, 2019 are recorded at P81,000.

Required: For the year 2020:

1. Schedule1. Budgeted production per quarter and in total.
2. Schedule 2. Budgeted materials purchases per quarter and in total.
3. Schedule 3. Budgeted payments to merchandise suppliers.

Schedule 1. Budgeted Production

Q1 Q2 Q3 Q4 Total
Budgeted sales in units 60,000 80,000 70,000 90,000 300,000
+ FG – end 16,000 14,000 18,000 15,000 15,000
Total needs 76,000 94,000 88,000 105,000 315,000
Less FG – beg 12,000 16,000 14,000 18,000 12,000
Budgeted production 64,000 78,000 74,000 87,000 303,000

Finished goods – end = 20% x next quarter’s sales

Q1 = 80,000 units x 20% = 16,000 units
Q2 = 70,000 units x 20% = 14,000
Q3 = 90,000 units x 20% = 18,000
Q4 = 75,000 units x 20% = 15,000
FG – beg = the ending of the previous quarter
Q1 = 60,000 units x 20% = 12,000 units
The ending inventory of the fourth quarter is the ending inventory of the year and the beginning inventory of the first
quarter is the beginning of the year.
Schedule 2. Budgeted materials purchases.
Q1 Q2 Q3 Q4 Total
Budgeted production 64,000 78,000 74,000 87,000 303,000
X standard materials per unit 3 lbs. 3 lbs. 3 lbs. 3 lbs. 3 lbs.
Budgeted materials usages (in lbs.) 192,000 234,000 222,000 261,000 909,000
+ materials inventory – end 57,600 70,200 66,600 78,300 78,300
Total materials needs 249,600 304,200 288,600 339,300 987,300
Less materials inventory – beg 75,000 57,600 70,200 66,600 75,000
Budgeted materials purchases (in lbs.) 174,600 246,600 218,400 272,700 912,300
X materials cost per lb. P1.20 P1.20 P1.20 P1.20 P1.20
Budgeted materials purchases(in pesos) P209,520 P295,920 P262,080 P327,240 P1,094,760

Materials inventory – end = 30% x current quarter’s needs

Q1 = 192,000 x 30% = 57,600 lbs.
Q2 = 234,000 x 30% = 70,200
Q3 = 222,000 x 30% = 66,600
Q4 = 261,000 x 30% = 78,300

Schedule 3. Budgeted payments to merchandise suppliers.

To Purchases of Credit Purchases Q1 Q2 Q3 Q4 Total
Q4, P180,000 P81,000 P81,000
Q1 209,520 112,931 P94,284 207,215
Q2 295,920 159,501 P133,164 292,665
Q3, 262,080 141,261 P117,936 259,197
Q4, 327,240 176,382 176,382
Budgeted payments to suppliers P193,931 253,785 274,425 294,318 1,016,459

SAMPLE PROBLEM

1. Cline Company has the following collection pattern for its accounts receivable:
40 percent in the month of sale
50 percent in the month following the sale
8 percent in the second month following the sale
2 percent uncollectible

The company has recent credit sales as follows:

April: P200,000

May: 420,000

June: 350,000

How much should the company expect to collect on its receivables in June?
ANS:

JUNE COLLECTIONS

From April sales: P200,000  .08 P16,000

From May sales: 420,000  .50 210,000

From June sales: 350,000  .40 140,000

Total P366,000

Oakwood Music, Inc.

Oakwood Music, Inc. sells Baldwin pianos. The following information regarding operating costs has been extracted from
budgets of Oakwood Music for December of this year and the first few months of next year:

Dec. Jan. Feb. Mar.

Payroll P12,000 P13,000 P22,000 P16,000

Insurance 4,000 4,000 4,000 4,000

Rent 6,000 6,000 6,000 6,000

Depreciation 2,000 2,000 2,000 2,000

Taxes 1,200 1,400 2,300 2,000

In addition to the above operating costs, enough pianos are purchased each month to maintain the inventory at 40
percent of the projected next month's sales. The firm is expected to be in compliance with this policy on December 1.
Budgeted sales are:

Dec. Jan. Feb. Mar. Apr.

Budgeted sales in units: 40 45 60 50 40

2. Refer to Oakwood Music, Inc. The average cost of a piano is P500. Merchandise is paid for in the month
following its purchase. All other expenses are paid in the month in which they are incurred. On average, a piano sells for
P1,500. Of each sale, 40 percent of the sales price is collected in the month of sale. The balance is collected in the month
following the sale. Prepare a cash budget for the first three months of next year. The beginning cash balance on January
1 is budgeted to be P50,000.
ANS:

CASH BUDGET

Oakwood Music, Inc.

Jan. Feb. Mar.

Beginning cash P 50,000 P 67,600 P 84,300

Cash collections:

Dec. sales 36,000

 Jan. sales 27,000 40,500

Feb. sales 36,000 54,000

Mar. sales 30,000

Cash available 113,000 144,100 168,300

Less cash disb. (45,400) (59,800) (56,000)

Ending cash P 67,600 P84,300 P112,300

3. Refer to Oakwood Music, Inc. The average cost of a piano is P500. Merchandise is paid for in the month
following its purchase. All other expenses are paid in the month in which they are incurred. Prepare a budget of the cash
disbursements for Oakwood Music, Inc. for the first three months of next year.
First, prepare a purchases budget for December through March for the pianos.

ANS:

Dec. Jan. Feb. Mar.

Required ending inventory 18 24 20 16

Projected sales 40 45 60 50

Total pianos needed 58 69 80 66

Less the beginning inventory (16) (18) (24) (20)

Pianos to be purchased 42 51 56 46

x the cost of the piano x P500 x P500 x P500 x P500

Budgeted purchases P21,000 P25,500 P28,000 P23,000

Budgeted cash disbursements

Jan. Feb. Mar.

Payroll P13,000 P22,000 P16,000

Insurance 4,000 4,000 4,000

Rent 6,000 6,000 6,000

Taxes 1,400 2,300 2,000

Merchandise purchases 21,000 25,500 28,000

Total P45,400 P59,800 P56,000

Wentworth Company

Wentworth Company manufactures three products (A, B, and C) from three raw materials (X, Y, and Z). The following
table indicates the number of pounds of each material that is required to manufacture each type of product:

Product Material X Material Y Material Z

A 2 3 2

B 2 1 2

C 3 2 2

The company has a policy of maintaining an inventory of finished goods on all three products equal to 25 percent of the
next month's budgeted sales. Listed below is the sales budget for the first quarter of 2001:

Month Product A Product B Product C

Jan. 10,000 11,000 12,000

Feb. 9,000 12,000 8,000

Mar. 11,000 10,000 10,000

4. Refer to Wentworth Company. Assuming that the company meets its required inventory policy, prepare a
production budget for the first 2 months of 2001 for each of the three products.
ANS:

Product A

January February

Required ending inventory 2,250 2,750

Projected sales 10,000 9,000

Total production needs 12,250 11,750

Less the beginning inventory (2,500) (2,250)

Budgeted production 9,750 9,500

Product B

January February

Required ending inventory 3,000 2,500

Projected sales 11,000 12,000

Total production needs 14,000 14,500

Less the beginning inventory (2,750) (3,000)

Budgeted production 11,250 11,500

Product C
 January February

Required ending inventory 2,000 2,500

Projected sales 12,000 8,000

Total production needs 14,000 10,500

Less the beginning inventory (3,000) (2,000)

Budgeted production 11,000 8,500

5. Refer to Wentworth Company. Unit costs of materials X, Y, and Z are respectively P4, P3, and P5. The Wentworth
Company has a policy of maintaining its raw material inventories at 50 percent of the next month's production needs.
Assuming that this policy is satisfied, prepare a material purchases budget for all three materials in both pounds and
dollars for January.

ANS:

Material X Purchases

Product A Product B Product C

Jan. Feb. Jan. Feb. Jan. Feb.

Prod. 9,750 9,500 11,250 11,500 11,000 8,500

 lbs. x 2 x 2 x 2 x 2 x 3 x 3

Tot. 19,500 19,000 22,500 23,000 33,000 25,500

Required EI (19,000 + 23,000 + 25,500)  .50 = 33,750

Needed: (19,500 + 22,500 + 33,000) = 75,000

Total raw material X needed: 108,750

Less: BI (75,000  .50) (37,500)

Material X to be purchased in January (pounds): 71,250

Multiply by cost of Material X per lb.: x P4

Budgeted Cost of Material X for January: P285,000

Material Y Purchases

Product A Product B Product C

Jan. Feb. Jan. Feb. Jan. Feb.

Prod. 9,750 9,500 11,250 11,500 11,000 8,500

 lbs. x 3 x 3 x 1 x 1 x 2 x 2

Tot. 29,250 28,500 11,250 11,500 22,000 17,000

Required EI (28,500 + 11,500 + 17,000)  .50 = 28,500

Needed: (29,250 + 11,250 + 22,000) = 62,500

Total raw material Y needed: 91,000

Less BI (62,500  .50) (31,250)

Material Y to be purchased in January (pounds): 59,750

Multiply by cost of Material Y per lb.: x P3

Budgeted Cost of Material Y for January: P179,250

Material Z Purchases

Product A Product B Product C

Jan. Feb. Jan. Feb. Jan. Feb.

Prod. 9,750 9,500 11,250 11,500 11,000 8,500

x lbs. x 2 x 2 x 2 x 2 x 2 x 2

Tot. 19,500 19,000 22,500 23,000 22,000 17,000

Required EI (19,000 + 23,000 + 17,000)  .50 = 29,500

Needed: (19,500 + 22,500 + 22,000) = 64,000

Total raw material Z needed: 93,500

Less BI (64,000 X .50) (32,000)

Material Z to be purchased in January (pounds): 61,500

Multiply by cost of Material Z per lb.: x 5

Budgeted Cost of Material Z for January: P307,500

The budgeted cost of all materials to be purchased in

Jan. would be P285,000 + P179,250 + P307,500 = P771,750

The following are forecasts of sales and purchases for China Grove Company:

Sales Purchases

April P80,000 P30,000

May 90,000 40,000

June 85,000 30,000

All sales are on credit. Records show that 70 percent of the customers pay the month of the sale, 20 percent pay the
month after the sale, and the remaining 10 percent pay the second month after the sale. Purchases are all paid the
following month at a 2 percent discount. Cash disbursements for operating expenses in June were P5,000.
Required: Prepare a schedule of cash receipts and disbursements for June.
ANS:
Schedules of Cash Receipts and Disbursements for June

Cash Receipts:

From current month sale (June) (.7  85,000) P59,500

From 1 month prior sale (May) (.2  90,000) 18,000

From 2 month prior sale (April) (.1  80,000) 8,000

Total cash receipts P85,500

Cash Disbursements:

May purchases @ 98% (less discount) (.98  40,000) P39,200

Operating expenses 5,000

Total cash disbursements P44,200

Net increase in cash for June P41,300

SAMPLE EXERCISES

1. Galela Inc. estimates its units sales for the coming months to be as follows:

March 280,000
April 260,000
May 250,000
June 230,000
July 240,000
August 225,000

Galela maintains inventory at budgeted sales needs for the next month. March 1 inventory will be 248,000 units.

a. Prepare a monthly purchasing schedule for March through July.

March purchases: 292,000 units (280,000 + 260,000 – 248,000)
April purchases: 250,000 units (260,000 + 250,000 – 260,000)
May purchases: 230,000 units (250,000 + 230,000 – 250,000)
June purchases: 240,000 units (230,000 + 240,000 – 230,000)
July purchase: 225,000 units (240,000 + 225,000 – 240,000)

2. Daylan Company manufactures a single product. It keeps its inventory of finished goods at twice the coming month's
budgeted sales and inventory of raw materials at 150% of the coming month's budgeted production. Each unit of
product requires five pounds of materials, which cost P3 per pound. The sales budget is, in units: May, 10,000; June,
12,400; July, 12,600; August, 13,200.

a. Compute budgeted production for June.

June production: 12,800 units {12,400 + (2 x 12,600) – (2 x 12,400)}

b. Compute budgeted production for July.

July production: 13,800 units {12,600 + (2 x 13,200) – (2 x 12,600)}

c. Compute budgeted material purchases for June in pounds and dollars.

June materials purchases: 71,500 pounds; P214,500
Used in production (5 lbs. x 12,800) 64,000 lbs.
Ending inventory (5 lbs. x 13,800 x 150%) 103,500
Total 167,500
Less: beginning inv. (5 lbs. x 12,800 x 150%) 96,000
Purchases 71,500
Times cost per pound 3
Equals dollar purchases P214,500

3. Legal sells a single product for P10. The purchase cost is P4 per unit and legal pays a 20% sales commission. Fixed
costs are P45,000 per month including P12,000 depreciation, and the company maintains inventory equal to budgeted
sales needs for the following month. The following budgeted data are available.

Inventory on hand, February 1 28,000 units

Budgeted sales - February 24,000 units
- March 26,000 units
- April 25,000 units
a. Compute total budgeted income for February and March.
Sales ({24,000 + 26,000) x P10} P500,000
Cost of sales (50,000 x 4) 200,000
Gross profit P300,000
Commissions at 20% (100,000)
Contribution margin P200,000
Fixed costs (2 x 45,000) 90,000
Income P110,000
b. Find budgeted inventory at March 31 in units and pesos.
Budgeted inventory: 25,000 units; P100,000 (4 x 25,000)

c. Find budgeted purchases for March in units and pesos.

Cost of sales 26,000 units P104,000
Ending inventory 25,000 100,000
Total required 51,000 P204,000
Less: beginning inv. 26,000 104,000
Purchases 25,000 units x 4 P100,000

4. Galvan Inc. estimates its sales for the coming months to be as follows.
June P340,000
July 360,000
August 300,000
September 260,000
October 240,000
November 200,000

Galvan has an average gross margin of 40% of sales and maintains inventory at 75% of budgeted cost of sales needs for
the next month. Galvan began June with P150,000 in inventory.

a. Prepare a monthly purchasing schedule (in P) for as many months as is possible.

June July August September October
Sales P340,000 360,000 300,000 260,000 240,000
X 60% 60% 60% 60% 60% 60%
Cost of sales P204,000 P216,000 P180,000 P156,000 P144,000
+ ending inv. 162,000 135,000 117,000 108,000 90,000
-beg. Inv. (150,000) (162,000) (135,000) (117,000) (108,000)
Purchases P216,000 P189,000 P162,000 P147,000 P126,000

5. Lovester Company has the following sales budget.

January P200,000
February P240,000
March P300,000
April P360,000

Cost of sales is 70% of sales. Sales are collected 40% in the month of sale and 60% in the following month. Lovester
keeps inventory equal to double the coming month's budgeted sales requirements. It pays for purchases 80% in the
month of purchase and 20% in the month after purchase. Inventory at the beginning of January is P190,000. Lovester
has monthly fixed costs of P30,000 including P6,000 depreciation. Fixed costs requiring cash are paid as incurred.
a. Compute budgeted cash receipts in March.
March receipts: P264,000 {(P240,000 x 60%) + (P300,000 x 40%)}

b. Compute budgeted accounts receivable at the end of March.

Receivables at end of March: P180,000 {(300,000 x (100% - 40%)}

c. Compute budgeted inventory at the end of February.

Inventory at end of February: P420,000 (300,000 x 70% x 2)

d. Compute budgeted purchases in February.

February purchases: P252,000 {(240,000 x 70%) + (300,000 x 2 x 70%) – (P240,000 x 2 x 70%)

e. March purchases are P290,000. Compute budgeted cash payments in March to suppliers of goods.
March payments: P282,400 {(252,000 x 20%) + (290,000 x 80%)

f. Compute budgeted accounts payable for goods at the end of February.

AP at end of February: P50,400 (252,000 x 20%)

g. Cash at the end of February is P45,000. Cash disbursements are not required for anything other than payments to
suppliers and fixed costs. Compute the budgeted cash balance at the end of March.
P2,600 (P25,000 + 264,000 – 282,400 – 24,000)

ILLUSTRATION 2024
Weasel Company has the following sales projections for 20X3:
January P200,000
February 210,000
March 225,000
April 230,000
May 245,000
June 240,000

Weasel collects 40% of its sales in the month of sale, 45% in the month following the sale and 13% in the second month
following the sale. Records show that sales were P225,000 in November and $208,000 in December 20X2.

a. Prepare a schedule of cash receipts for the first three months of 20X3.
b. What would be the accounts receivable (net of bad debts) balance on March 31, 20X3?
SOLUTION:

a. January collections: (13% x 225,000) = P29,250

 (45% x 208,000) = 93,600
(40% x 200,000) = 80,000
-------
P202,850
========
February collections: (13% x 208,000) = P27,040
(45% x 200,000) = 90,000
(40% x 210,000) = 84,000
-------
P201,040
========
March collections: (13% x 200,000) = P26,000
(45% x 210,000) = 94,500
(40% x 225,000) = 90,000
-------
P210,500
========
b. P157,800 P27,300 = February sales 210,000 x 13%
P130,500 = March sales 225,000 x (45% + 13%)
--------
P157,800
========
9. Bismarck has the following sales budget:
March P300,000
April P312,000
May P320,000
June P348,000

Cost of sales is 55% of sales. Bismarck keeps an inventory equal to one-fourth the coming month's budgeted
sales requirements. It pays for purchases 40% in the month of purchase and 60% in the month after purchase. Accounts
Payable is P94,800 on March 1.
a. Prepare a monthly purchasing schedule for March through May.
b. Prepare a monthly cash payment schedule for March through May.
c. Compute the accounts payable balance as of May 31.

SOLUTION:
a. March April May
Sales P300,000 P312,000 P320,000
x 55% x .55 x .55 x .55
-------- -------- --------
Cost of Sales $165,000 $171,600 $176,000
+ Ending Inv 42,900 44,000 51,975
- Beg Inv (41,250) (42,900) (44,000)
-------- -------- --------
Purchases $166,650 $172,700 $183,975
======== ======== ========
b. March payments: (40% x 166,650) = $ 66,660
Mar 1 Acct Pay = 94,800
-------
$161,460
========
April payments: (40% x 172,700) = $ 69,080
 (60% x 166,650) = 99,990
-------
$169,070
========
May payments: (40% x 183,975) = $ 73,590
(60% x 172,700) = 103,620
-------
$177,210
========
c. Accounts Payable, May 31: $110,385 [60% x $183,975]
10. Hicks Company has the following sales projections for 20X4:

January P160,000 March 175,000 May 195,000

February 168,000 April 180,000 June 190,000

Hicks collects 30% of its sales in the month of sale, 45% in the month following the sale, and 24% in the second
month following the sale. Records show that sales were P160,000 in November and P168,000 in December 20X3.

a. Prepare a schedule of cash receipts for the first three months of 20X4.
b. What would be the accounts receivable balance (net of bad debts) on March 31, 20X4?
SOLUTION:

a. January collections: (24% x 160,000) = $38,400

(45% x 168,000) = 75,600
(30% x 160,000) = 48,000
-------
$162,000
========
February collections: (24% x 168,000) = $40,320
(45% x 160,000) = 72,000
(30% x 168,000) = 50,400
-------
$162,720
========
March collections: (24% x 160,000) = $38,400
(45% x 168,000) = 75,600
(30% x 175,000) = 52,500
-------
$166,500
========
b. $161,070 $40,320 = February sales (168,000 x 24%)
120,750 = March sales [175,000 x (45% + 24%)]
-------
$161,070
========

ASSIGNMENT 2025
5 POINTS EACH
Problem 1. You have been asked to prepare a June cash budget for Flexible Company, a distributor of Sports equipment.
The following information is available about the company’s operations: The actual sales for the months of April and May
and expected sales for June are:
April May June
Cash sales P65,000 P70,000 P83,000
Account Sales 400,000 525,000 600,000

Sales on account are collected over a three-month period in the following ratio: 20% collected in the month of sales,
60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is
uncollectible.
Other information:
a. The cash balance on June 1 will be P40,000.
b. Purchases of inventory will total P280,000 for June. Thirty percent of a month’s inventory purchases are paid during
the month of purchase. The accounts payable remaining from May’s inventory purchases total P161,000, all of which
will be paid in June.
c. Selling and administrative expenses are budgeted at P430,000 for June. Of this amount, P50,000 is for depreciation.
d. A new computer for the Marketing Department costing P76,000 will be purchased for cash during June, and dividends
totaling P25,000 will be paid during the month.
e. The company must maintain a minimum cash balance of P25,000. An open line credit is available from the company’s
bank to maintain the cash level requirement.
Requirements:
1. Prepare a schedule of expected cash collections for June.
2. Prepare a schedule of expected cash disbursements in June for inventory purchases.
3. Prepare a cash budget for June.
Problem 2. Operational budgets are used by a retail company for planning and controlling its business activities. Data
regarding the company's monthly sales for the last 6 months of the year and its projected collection patterns are shown
below. The cost of merchandise averages 40% of its selling price. The company's policy is to maintain an inventory equal
to 25% of the next month's forecasted sales. The inventory balance at cost is P80,000 as of June 30.
Forecasted Sales
July P775,000
August 750,000
September 825,000
October 800,000
November 850,000
December 900,000

Types of Sales
Cash sales 20%
Credit sales 80%

Collection Pattern for Credit Sales:

Month of sale 40%
First month following the sales 57%
Uncollectible 3%

1. The budgeted cost of the company's purchases for the month of August would be?
2. The company's total cash receipts from sales and collections on account that would be budgeted for the month of
September would be?