Budgeting

MODULE 8 - BUDGETING A. To provide a basis for comparison of actual performance

B. To communicate the company’s plans throughout the entire business organization
THEORIES: C. To control income and expenditure in a particular period.
Basic Concepts D. To make sure the company expands its operations.
1. The concept of “management by exception” refers to management’s consideration of
A. only those items that vary materially from expectations. 5. Which of the following does not contribute to an effective budgeting?
B. only rare events. A. Top management is involved in budgeting.
C. samples selected at random. B. To give each manager a free hand in the preparation of the budget, the data within the
D. only significant unfavorable deviations. master budget are flexible.
C. The organization is divided into responsibility units.
8. A formal written statement of management’s plans for the future, packaged in financial D. There is communication of results.
terms, is a:
A. Responsibility report. C. Cost of production report. 6. The budgets that are based on a very high levels of performance, like expected costs using
B. Performance report. D. Budget. ideal standards,
A. assist in planning the operations of the company
2. Budgets are related to which of the following management functions? B. stimulate people to perform better than they ordinarily would
A. Planning C. Control C. are helpful in evaluating the performance of managers
B. Performance evaluation D. all of these D. can lead to low levels of performance

22. Budgeting supports the planning process by encouraging all of the following activities 7. Which of the following statements is incorrect?
except: A. An imposed budget is the same as a participative budget.
A. Requiring all organizational units to establish their goals for the coming period. B. Preparation of the budget would be the responsibility of each responsibility unit.
B. Increasing the motivation of managers and employees by providing agreed-upon C. Top management’s support is necessary to promote budget participation.
expectations. D. The top management should review and approve each responsibility unit’s budget.
C. Improving overall decision making by considering all viewpoints, options, and cost
control programs. 9. The primary role of the budget director and the budgeting department is to
D. Directing and coordinating operations during the period. A. Settle disputes among operating executives during the development of the annual
operating plan.
3. Which of the following advantages does a budget mostly provide? B. Develop the annual profit plan by selecting the alternatives to be adopted form the
A. Coordination is increased. suggestions submitted by the various operating segments.
B. Planning is emphasized. C. Compile the budget and manage the budget process.
C. Communication is continuous. D. Justify the budget to the corporate planning committee of the board of directors.
D. Comparison of actual versus budgeted data.
10. The primary variable affecting active participation and commitment to the budget and the
24. Which of the following is NOT an advantage of budgeting? control system is
A. It forces managers to plan. A. Management efforts to achieve the budget rather than optimize results.
B. It provides resource information that can be used to improve decision making. B. The rigid adherence to the budget without recognizing changing conditions.
C. It aids in the use of resources and employees by setting a benchmark that can be used C. Top management involvement in support of the budget.
for the subsequent evaluation of performance. D. The opportunity budgeting gives to risk-taker managers for department growth.
D. It provides organizational independence.
12. A variant of fiscal-year budgeting whereby a twelve-month projections into the future is
4. Which of the following is least likely a reason why a company prepares its budget? maintained at all times:
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A. Forecasting. C. Continuous budgeting. B. zero-based approach D. both a and b are true

B. Zero-based budgeting. D. Calendar budgeting.
51. Zero-base budgeting requires managers to
35. The method of budgeting which adds one month’s budget to the end of the plan when the A. Justify expenditures that are increases over the prior period’s budgeted amount.
current month’s budget is dropped from the plan refers to B. Justify all expenditures, not just increases over last year’s amount.
A. Long-term budget C. Incremental budget C. Maintain a full-year budget intact at all times.
B. Operations budget D. Continuous budget D. Maintain a budget with zero increases over the prior period.

27. A continuous budget 13. Zero-based budgeting:

A. is a budget that is revised monthly or quarterly. A. involves the review of changes made to an organization’s original budget.
B. is a medium term plan that consists of more than 2 years’ projections. B. does not provide a summary of annual projections.
C. is appropriate only for use of a not-for-profit entity. C. involves the review of each cost component from a cost/benefit perspective.
D. works best for an entity that can reliably forecast events a year or more into the future. D. emphasizes the relationship of effort to projected annual revenues.

37. “Incremental budgeting” refers to 18. A systematized approach known as zero-based budgeting:
A. line-by-line approval of expenditures A. Classifies the budget by the prior year’s activity and estimates the benefits arising from
B. setting budget allowances based on prior year expenditures each activity.
C. requiring top management approval of increases in budgets B. Commence with either the current level of spending or projected whichever is lower.
D. using incremental revenues and costs in budgeting C. Presents planned activities for a period of time but does not present a firm commitment.
D. Divides the activities of individual responsibility centers into a series of packages that are
49. A budget plan for annual fixed costs that arises from top management decisions directly prioritized.
reflecting corporate policy.
A. Flexible budget. C. Discretionary budget. 20. Which of the following statements about Zero-based budgeting is incorrect?
B. Static budget. D. Program budget. A. All activities in the company are organized into break-up units called packages.
B. All costs have to be justified every budgeting period.
36. The term “decision package” relates to C. The process is not time consuming since justification of costs can be done as a routine
A. comprehensive budgeting C. program budgeting matter.
B. zero-based budgeting D. line budgeting D. Zero-based budgeting includes variable costs only.

41. The budget approach that is more relevant when the continuance of an activity or operation 34. Budgeting expenditures by purpose is called
must be justified on the basis of its need or usefulness to the organization. A. program budgeting C. zero-based budgeting
A. the incremental approach C. the baseline approach B. line budgeting D. flexible budgeting
B. the zero-based approach D. both a and b are true
28. A static budget is not appropriate in evaluating a manager's effectiveness if a company has
11. The process of developing budget estimates by requiring all levels of management to A. substantial fixed costs.
estimate sales, production, and other operating data as though operations were being B. substantial variable costs.
initiated for the first time is referred to as: C. planned activity levels that match actual activity levels.
A. Forecasting. C. Continuous budgeting. D. no variable costs.
B. Zero-based budgeting. D. Program budgeting.
45. Flexible budgeting is a reporting system wherein the
38. Which of the following is a contemporary approach to budgeting? A. Budget standards may be adjusted at management’s discretion.
A. incremental approach C. baseline approach B. Planned level of activity is adjusted to the actual level of activity before the performance
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report is prepared. 17. A system that classifies budget requests by activity and estimates the benefits arising from
C. Reporting dates vary according to the managerial levels of the users. each activity:
D. Packages of activities vary from period to period. A. Incremental budgeting system.
B. Static budgeting system.
15. A budget that presents the plan for a range of activity so that the plan can be adjusted for C. Program planning and budgeting system.
changes in activity levels is referred to as: D. Participative system.
A. Zero-based budgeting.
B. Continuous budgeting. 21. A budget that identifies revenues and costs with an individual controlling their incurrence is
C. Flexible budgeting. A. Master budget C. Product budget
D. Program planning and budgeting system. B. Responsibility budget D. None of the above

16. A flexible budget is 25. The difference between an individual's submitted budget projection and his or her best
A. one that can be changed whenever a manager so desires estimate of the item being projected is an example of
B. adjusted to reflect expected costs at the actual level of activity A. padding the budget
C. one that uses the formula total costs = cost per unit x units produced B. adhering to zero-based budgeting assumptions
D. the same as a continuous budget C. creating budgetary slack
D. being incongruent with participative budgeting
26. A series of budgets for varying levels of activity is a:
A. Variable cost budget. C. Master budget. 43. Budget slack is a condition in which
B. Flexible budget. D. Zero-based budget. A. Demand is low at various times of the year
B. Excess machine capacity exists in some areas of the plant
48. If a company wishes to establish a factory overhead budget system in which estimated costs C. There is an intentional overestimate of expenses or an underestimate of revenues
can be derived directly from estimates of activity levels, it should prepare a D. Managers grant favored employees extra time-off
A. flexible budget. C. Discretionary budget.
B. Program budget. D. Manufacturing budget. 39. The procedure for setting profit objectives in which the determination of profit objectives is
subordinated to the planning, and the objectives emerge as the product of the planning itself
46. The basic difference between a master budget and a flexible budget is that a is the
A. Flexible budget considers only variable costs but a master budget considers all costs. A. a priori method C. practical method
B. Flexible budget allows management latitude in meeting goals whereas a master budget B. theoretical method D. a posteriori method
is based on a fixed standard.
C. Master budget is for an entire production facility but a flexible budget is applicable to 40. The procedure for setting profit objectives in which management specifies a given rate of
single department only. return that it seeks to realize in the long run by means of planning toward that end is the
D. Master budget is based on one specific level of production and a flexible budget can be A. a priori method C. pragmatic method
prepared for any production level within a relevant range B. theoretical method D. ad hoc method

47. Which of the following is a difference between a static budget and a flexible budgets? 50. Budgeting process in which information flows top down and bottom up is referred to as:
A. A flexible budget includes only variable costs; a static budget includes only fixed costs. A. Continuous budgeting. C. Perpetual budgeting
B. A flexible budget includes all costs, a static budget includes only fixed costs. B. Participative budgeting D. Joint budgeting
C. A flexible budget gives different allowances for different levels of activity, a static budget
does not. 42. Which of the following is not a potential problem with participative budgeting?
D. There is no difference between the two. A. setting standards that are either too high or too low
B. padding the budget
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C. build slack into the budget used is

D. all of the above are potential problems A. developed using the indicator method
B. the sum of the sales expected by individual managers
33. The ideal financial planning process would be C. based on expected selling prices of the products
A. top-down planning. D. based on probabilities
B. bottom-up planning.
C. a combination of top-down and bottom-up planning. 31. Several sales forecasts are available from different sources and the managers have good
D. None of the above ideas about their likelihoods. This situation call for the use of
A. the expected value concept C. indicator methods
44. A common starting point in the budgeting process is B. historical analysis D. a scatter diagram
A. expected future net income. C. to motivate the sales force.
B. past performance. D. a clean slate, with no expectations. 53. An overly optimistic sales budget may result in
A. increases in selling prices late in the year.
57. Which one of the following is an external factor that would need to be considered in forming an B. insufficient inventories.
initial budget proposal? C. increased sales during the year.
A. changes in product design D. excessive inventories.
B. introduction of a new product
C. competitors' actions 56. Which of the following budgets provides the data for the preparation of the direct labor cost
D. adoption of a new manufacturing process budget?
A. Direct materials purchase budget. C. Sales budget.
14. Operating budgets are B. Cash budget. D. Production budget.
A. a forecast of expected operating expenses.
B. a forecast of operating expenses and related revenues. 55. The increased use of automation and less use of the work force in companies has caused a
C. a forecast of units of production. trend towards an increase in
D. concerned with the income-generating activities of a firm. A. both variable and fixed costs.
B. fixed costs and a decrease in variable costs.
54. What is the proper preparation sequencing of the following budgets? C. variable costs and a decrease in fixed costs.
1. Budgeted Balance Sheet D. variable costs and no change in fixed costs.
2. Sales Budget
3. Selling and Administrative Budget 32. In preparing a cash budget, which of the following is normally the starting point for projecting
4. Budgeted Income Statement cash requirements?
A. 1, 2, 3, 4 C. 2, 3, 4, 1 A. Fixed assets. C. Accounts receivable.
B 2, 3, 1, 4 D. 2, 4, 1, 3 B. Sales. D. Inventories.

29. In estimating the sales volume for a master budget, which of the following techniques may 52. Recognition of the many uncertainties in budgeting is exemplified by companies normally
be used to improve the projections? A. forecasting sales
A. Brainstorming. B. establishing minimum required cash balances
B. Statistical analysis. C. forecasting only fixed costs
C. Estimating from previous sales volume. D. omitting expected dividend payments from budgeted disbursements
D. All of these are useful.
19. Which of the following statements is True?
30. Using the concept of ‘expected value” in sales forecasting means that the sales forecast to be A. Under zero-based budgeting, a manager is required to start at zero budget levels each
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period, as if the programs involved were being initiated for the first time. A. P 530,000 C. P 810,000
B. The primary purpose of the cash budget is to show the expected cash balance at the end B. P 790,000 D. P1,070,000
of the budget period.
C. Budget data are generally prepared by top management and distributed downward in an .
3
Calypso Co. has projected sales to be P600,000 in January, P750,000 in February, and
organization. P800,000 in March. Calypso wants to have 50% of next month’s sales needs on hand at the
D. The budget committee is responsible for preparing detailed budget figures in an end of a month. If Calypso has an average gross profit of 40%, what are the February 28
organization. purchases?
A. P465,000 C. P775,000
23. Which of the following is a valid statement? B. P310,000 D. P428,000
A. Responsibility budget identifies revenue and costs with the individual responsible for their
incurrence. .
4
Blue Company budgeted purchases of P100,000. Cost of sales was P120,000 and the
B. The best way to establish budget figures is to use last year’s actual cost and activity data desired ending inventory was P42,000. The beginning inventory was
as this year’s budget estimates. A. P20,000 C. P42,000
C. A sales budget and a sales forecast are the same thing. B. P32,000 D. P62,000
D. The primary purpose of the cash budget is to show the expected cash balance at the end
of the budget period. 5
. The payment schedule of purchases made on account is: 60% in the time period of
purchase, 30% in the following time period, and 10% in the subsequent time period. Total
PROBLEMS: credit purchases were P200,000 in May, and P100,000 in June. Total payments on credit
Cost estimation formula purchases were P140,000 in June. What were the credit purchases in the month of April?
1
. Management has prepared a graph showing the total costs of operating branch warehouses A. P200,000 C. P145,000
throughout the country. The cost line crosses the vertical axis at P400,000. The total cost B. P100,000 D. P215,000
of operating one branch is P650,000. The total cost of operating ten branches is
P2,900,000. For purposes of preparing a flexible budget based on the number of branch Production budget
warehouses in operation, what formula would be used to determine budgeted costs at 6
. Montalban Company’s sales budget shows the following expected sales for the following
various levels of activity? year:
A. Y = P400,000 + P250,000X C. Y = P650,000 + P400,000X Quarter Units
B. Y = P400,000 + P290,000X D. Y = P650,000 + P250,000X First 120,000
Second 160,000
Sales budget Third 90,000
Purchases budget – merchandising concern Fourth 110,000
2
. PTO Company desires an ending inventory of P140,000. It expects sales of P800,000 and Total 480,000
has a beginning inventory of P130,000. Cost of sales is 65% of sales. Budgeted purchases The inventory at December 31 of the prior year was budgeted at 36,000 units. The quantity
are of finished goods inventory at the end of each quarter is to equal 30% of the next quarter’s
1
budgeted sales of units.
. Answer: A How much should the production budget show for units to be produced during the first
The amount of fixed costs in operating branches’ 10 warehouses is P400,000 (the fixed cost quarter?
line intercepts the vertical axis). A. 48,000 C. 132,000
Total operating costs P2,900,000 B. 96,000 D. 144,000
Less fixed costs 400,000
Total variable costs (10 warehouses) P2,500,000 7
. Lorie Company plans to sell 400,000 units of finished product in July an anticipates a growth
Variable costs per branch: P2,500,000  10 P 250,000 rate in sales of 5% per month. The desired monthly ending inventory in units of finished

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product is 80% of the next month’s estimated sales. materials. The production budget is, in units: May, 1,000; June, 1,200; July, 1,300; august,
There are 300,000 finished units in the inventory on June 30. Each unit of finished product 1,600. Raw material purchases in July would be
requires four pounds of direct materials at a cost of P2.50 per pound. There are 800,000 A. 1,525 pounds C. 2,550 pounds
pounds of direct materials in the inventory on June 30. B. 2,900 pounds D. 3,050 pounds
How many units should be produced for the three-month period ending September 30?
A. 1,260,000 C. 1,331,440 . Each unit of finished product uses 6 kilograms of raw materials. The production and inventory
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B. 1,328,000 D. 1,424,050 budgets for May 2007 are as follows:

Beginning Inventory:
Ending inventory budget Finished goods 15,000 units
8
. If the required direct materials purchases are 8,000 pounds and the direct materials required Raw materials 21,000 kg.
for production is three times the direct materials purchases, and the beginning direct Budgeted unit sales 18,000 units
materials are three and a half times the direct materials purchases, what are the desired Planned ending inventory
ending direct material in pounds? Finished goods 11,400 units
A. 20,000 C. 12,000 Raw materials 24,400 kg.
B. 4,000 D. 32,000 During the production process, it is usually found that 10% of production units are scrapped as
defective and this loss occurs after the raw materials have been placed in process.
Raw materials usage budget How many kilograms of raw materials should be purchased in June?
9
. Minerva Company sells a single product. Budgeted sales for the year are anticipated to be A. 89,800 C. 96,000
640,000 units. The estimated beginning and ending finished goods inventory are 108,000 B. 98,440 D. 99,400
and 90,000, respectively. A production of one unit requires the following materials:
Material LL 0.50 lb. @ P0.60 . Violet Company manufactures a single product. It keeps its inventory of finished goods at
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Material MM 1.00 lb. @ P1.70 twice the coming month’s budgeted sales, inventory of raw materials at 150% of the coming
Material NN 1.20 lb. @ P1.00 month’s budgeted production requirements. Each unit of product requires two pounds of
What are the respective peso amounts of each material to be used in production during the materials. The production budgets in units consist of the following:.
year? May 1,000
Material LL Material MM Material NN June 1,200
A. P181,200 P1,026,800 P724,800 July 1,300
B. P181,200 P1,026,800 P746,400 August 1,600
C. P186,600 P1,057,400 P746,400 Raw material purchases in June would be
D. P186,600 P1,057,400 P724,800 A. 2,600 pounds C. 2,400 pounds
B. 1,800 pounds D. 2,700 pounds
Raw materials purchases budget
10
. If there were 30,000 pounds of raw material on hand on January 1, 60,000 pounds are
14
. Sales Company is budgeting sales of 300,000 units of its only product for the coming year.
desired for inventory at December 31, and 180,000 pounds are required for annual Production of one unit of product requires three pounds of Material Q and 2 pounds of
production, how many pounds of raw material should be purchased during the year? Material L. Inventory units at the beginning of the year are:
A. 150,000 pounds C. 120,000 pounds Actual, Jan. 1 Budgeted, Dec 31
B. 240,000 pounds D. 210,000 pounds Finished goods 60,000 50,000
Material Q 80,000 60,000
. Silver Bowl Company manufactures a single product. It keeps its inventory of finished goods
11 Material L 88,000 96,000
at 75% the coming month’s budgeted sales. It also keeps its inventory of raw materials at 50% How many pounds of Material Q is Sales planning to buy during the coming year?
of the coming month’s budgeted production. Each unit of product requires two pounds of A. 850,000 C. 862,000

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B. 890,000 D. 908,000 18
. Generous Company began its operations on January 1 of the current year. Budgeted sales
for the first quarter are P240,000, P300,000, and P420,000, respectively, for January,
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. Strama Company prepares its budgets on annual basis. The following beginning and February and March. Generous Company expects 20% of its sales cash and the remainder
ending inventory unit levels are planned for the fiscal year of June 1, 2006 through May 31, on account. Of the sales on account, 70% are expected to be collected in the month of sale,
2007. 25% in the month following the sale, and the remainder in the following month.
June 1, 2006 May 31, 2007 How much should Generous receive from sales in March?
Raw material* 40,000 50,000 A. P304,800 C. P388,800
Work-in-process 10,000 10,000 B. 294,000 D. P295,200
Finished goods 80,000 50,000
*Two (2) units of raw material are needed to produce each unit of finished product. Credit sales
If 500,000 finished units were to be manufactured during the 2006-2007 fiscal year by
19
. Mendrez Company has a collection schedule of 60% during the month of sales, 15% the
Strama Company, the units of raw material needed to be purchased would be following month, and 15% subsequently. The total credit sales in the current month of
A. 1,000,000 units C. 1,020,000 units September were P80,000 and total collections in September were P57,000. What were the
B. 1,010,000 units D. 990,000 units credit sales in July?
A. P90,000 C. P45,000
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. Diliman Corporation includes the following quarterly budget for production: B. P30,000 D. P32,000
Quarter Production
Cash collections
First 60,000 units 20
. Obligacion Company has P299,000 in accounts receivable on January 1, 2006. Budgeted
Second 45,000 units
sales for January are P860,000. Obligacion expects to sell 20% of its merchandise for cash.
Third 40,000 units
Of the remaining sales, 75% are expected to be collected in the month of sale and the
Fourth 65,000 units
remainder the following month.
Each unit of product requires 2.5 kilograms of direct materials. The company begins each The January cash collections from sales are:
quarter with inventory of direct materials equal to 25 percent of the total quarter ’s material A. P815,000 C. P471,000
requirements. B. P691,000 D. P987,000
What is the budgeted purchases of materials for the second quarter?
A. 113,750 C. 46,250 21
. Adel Company has the following sales forecasts for the selected three-month period in
B. 109,375 D. 112,500 2007:
Month Sales
Indirect labor costs
17
. Namuco, Inc. uses flexible budgeting for cost control. During the month of September, April P12,000
Namuco, Inc. produced 14,500 units of finished goods with indirect labor costs of P25,375. May 7,000
Its annual master budget reflects an indirect labor costs, a variable cost, of P360,000 based June 8,000
on an annual production of 200,000 units. In the preparation of performance analysis for the Seventy percent of sales are collected in the month of the sale, and the remainder is
month of September, how much flexible budget should be allowed for indirect labor costs? collected in the following month.
A. P30,000 C. P25,375 Accounts receivable balance (April 1, 2007) P10,000
B. P29,167 D. P26,100 Cash balance (April 1, 2007) 5,000
Minimum cash balance is P5,000. Cash can be borrowed in P1,000 increments from the
Cash receipts budget local bank (assume no interest charges).
Sales How much cash would be collected in June from sales?
A. P 7,700 C. P 8,000
B. P 8,500 D. P10,000

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B. P254,000 D. P331,500
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. The Avelina Company has the following historical pattern on its credit sales.
70 percent collected in month of sale Accounts receivable balance
15 percent collected in the first month after sale 24
. As of January 1, 2007, the Liberal Sales Company had an account receivable of P500,000.
10 percent collected in the second month after sale The sales for January, February, and March were as follows: P1,200,000, P1,400,000 and
4 percent collected in the third month after sale P1,500,000, respectively. Of each month’s sales, 80% is on account. 60% of account
2 percent uncollectible sales is collected in the month of sale, with remaining 40% collected in the following month.
The sales on open account have been budgeted for the last six months of 2007 are shown What is the accounts receivable balance as of March 31, 2007?
below: A. P720,000 C. P587,200
July P 60,000 B. P480,000 D. P600,000
August 70,000
September 80,000 Credit to accounts receivable
October 90,000 25
. Ironman Company is preparing its cash budget for the month ending November 30. The
November 100,000 following information pertains to Ironman’s past collection experience from its credit sales:
December 85,000 Current month’s sales 12%
The estimated total cash collections during the fourth calendar quarter from sales made on Prior month’s sales 75%
open account during the fourth calendar quarter would be Sales two months prior to current month 6%
A. P172,500 C. P265,400 Sales three months prior to current month 4%
B. P230,000 D. P251,400 Cash discounts (2/30, net/90) 2%
Doubtful accounts 1%
. The Le Amore Company had the following budgeted sales for the first half of the current
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Credit sales:
year: November – estimated P2,000,000
Cash Sales Credit Sales October 1,800,000
January P70,000 P340,000 September 1,600,000
February 50,000 190,000 August 1,900,000
March 40,000 135,000 How much is the estimated credit to Accounts Receivable as a result of collections expected
April 35,000 120,000 during November?
May 45,000 160,000 A. P1,730,200 C. P1,762,000
June 40,000 140,000 B. P1,757,200 D. P1,802,000

The company is in the process of preparing a cash budget and must determine the expected Increase in accounts receivable
cash collections by month. To this end, the following information has been assembled:
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. Lazaro Company will open a new store on January 1. Based on experience from its other
retail outlets, Lazaro is making the following sales projections:
Collections on sales: 60% in month of sale
30% in month following sale Cash Sales Credit Sales
10% in second month following sale January P600,000 P400,000
The accounts receivable balance on January 1 of the current year was P70,000, of which February 300,000 500,000
P50,000 represents uncollected December sales and P20,000 represents uncollected March 400,000 600,000
November sales. April 400,000 800,000
The total cash collected by Le Amore Company during the month of January would be: Lazaro estimates that 70% of the credit sales will be collected in the month following the
A. P410,000 C. P344,000 month of the sale, with the balance collected in the second month following the sale. Based

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on these data, the balance in accounts receivable on January 31 will be increased by first quarter of 2007. In December 31, the store had the following balance:
A. 400,000 C. P120,000 Cash P 55,000
B. P280,000 D. P580,000 Accounts receivable 4,370,000
Inventories 3,094,000
Cash disbursements Accounts payable 1,330,550
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. Cascades Company, a merchandising firm, is preparing its master budget and has gathered
the following data to help budget cash disbursements: The following information are relevant to 2007 operations:
Budgeted data: Sales:
Cost of goods sold P1,680,000 a. Each month’s sales are billed on the last day of the month.
Desired decrease in inventories 70,000 b. Customers are allowed a 3 percent discount if payment is made within 10 days after the
Desired decrease in Accounts Payable 150,000 billing date. Receivables are booked gross.
All of the accounts payables are for inventory purchases and all inventory items are c. Sixty percent of the billings are collected within the discount period, twenty-five percent
purchased on account. What are the estimated cash disbursements for inventories for the are collected by the end of the month, nine percent are collected by the end of the
budget period? second month, and six percent are considered entirely uncollectible.
A. P1,460,000 C. P1,900,000
B. P1,600,000 D. P1,760,000 Purchases:
1. Fifty four percent of all purchases and selling, general, and administrative expenses are
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. Albatross Company started its commercial operations on September 30 of the current year. paid in the month purchased and the remainder in the following month.
Projected manufacturing costs for the first three months of operations are P1,568,000, 2. Each month’s units of ending inventory is equal to one hundred thirty percent of the
P1,952,000, and P2,176,000, respectively. Depreciation, insurance, and property taxes next month’s units of sales.
represent P288,000 of the estimated manufacturing costs. Insurance was paid on 3. The cost of each unit of inventory is P200.
September 30, and property taxes will be paid in July next year. Seventy-five percent of the 4. Selling, general, and administrative expenses, of which P20,000 is depreciation, are
remainder of the manufacturing costs are expected to be paid in the month in which they are equal to fifteen percent of the current month’s sales.
incurred, with the balance to be paid in the following month. The cash payments for
manufacturing costs in the month of November are: Actual and projected sales are as follows:
A. P1,568,000 C. P1,664,000 UNITS PESOS
B. P1,952,000 D. P1,856,000 November 11,800 P3,540,000
December 12,100 3,630,000
Ending cash balance January 11,900 3,570,000
29
. Albania Company expects its June sales to be P300,000, which is 25% higher than its May February 11,400 3,420,000
sales. Purchases were P200,000 in May and are expected to be P240,000 in June. All sales March 12,000 3,600,000
are on credit and are collected as follows: 80% in the month of the sale and 20% in the April 12,200 3,660,000
following month. All payments in the month of sales are given 2% discount. Sixty percent of
purchases are paid in the month of purchase to take advantage of purchase term of 1/10, 30
. The respective amounts of budgeted purchases for the months of January and February
n/40. The remaining amount is paid in the following month. The beginning cash balance on are:
June 1 is P20,000. The ending cash balance on June 30 would be: A. P2,418,000 and P2,360,000 C. P2,250,000 and P2,436,000
A. P64,160 C. P80,640 B. P2,380,000 and P2,280,000 D. P3,570,000 and P3,420,000
B. P73,000 D. P85,440
31
. The budgeted cash disbursements for the month of February are:
Comprehensive A. P2,929,000 C. P2,949,000
Question Nos. 30 through 33 are based on the following information: B. P2,873,790 D. P2,853,790
Apollo Merchandiser asks your services to develop cash and other budget information for the
441
 Budgeting
34
. How much will be paid in the month of January for the purchase of materials?
32
. The amount of cash collected from sales during the month of January is: A. P 27,200 C. P137,856
A. P3,338,760 C. P3,404,100 B. P117,200 D. P 33,600
B. P3,551,160 D. P3,556,560
. How much does Atlanta plan to disburse in the month of June?
35
33
. The number of units to be purchased during the month of March is: A. P 41,600 C. P207,200
A. 15,860 C. 12,000 B. P100,000 D. P117,200
B. 12,260 D. 15,600
Question Nos. 36 through 38 are based on the following:
Rajah Enterprises is a growing retailer of home care products. During the first four months of the Super Sales’ actual sales and purchases for April and May are shown here along with forecasted
following year, it forecasts the following sales and purchases: sales and purchases for June through September.

Sales Purchases Sales Purchases

January P7,200,000 P4,200,000 April (Actual) P390,000 P200,000
February 6,600,000 4,800,000 May (Actual) 420,000 220,000
March 6,000,000 3,600,000 June (forecast) 390,000 210,000
April 7,800,000 5,400,000 July (forecast) 350,000 240,000
Rajah collects 70% of sales is collection during the month of sale, 20% the following month and August (forecast) 420,000 320,000
9% in the second month. 1% of sales are deemed uncollectible. September (forecast) 410,000 230,000

In order to fully avail of the 2% discount, Rajah pays all the purchases by the tenth of the month The company makes 10 percent of its sales for cash and 90 percent on credit. Of the credit sales,
following the month of purchase. 30 percent are collected in the month after the sale and 70 percent are collected two months after.
Super Sales pays for 45 percent of its purchases in the month after purchase and 55 percent two
Sales for the month of May are expected to be P6,600,000 and the amount of purchases are months after.
P6,000,000. Operating expenses to be paid during the month of May will be P1,440,000 and the
cash balance by May 1 is P2,200,000. Labor expense equals 15 percent of the current month's sales. General overhead expense equals
P10,000 per month. Interest payments of P35,000 are due in June and September. A cash
The Atlanta Corporation has forecast the following sales for the first seven months of the year: dividend of P25,000 is scheduled to be paid in June. Tax payments of P30,000 are due in June
and September. There is a scheduled purchase for cash of an equipment, P290,000 in September.
January P120,000 May P120,000
February 160,000 June 200,000 Super Sales’ ending cash balance in May is P25,000. The minimum desired cash balance is
March 180,000 July 220,000 P20,000. The maximum desired cash balance is P50,000. Excess cash (above P50,000) is used
April 240,000 to buy marketable securities. Marketable securities are sold before borrowing funds in case of a
cash shortfall (less than P20,000).
Monthly material purchases are set equal to 20 percent of forecasted sales for the next month. Of
the total material costs, 40 percent are paid in the month of purchase and 60 percent in the . During the month of June, Super Sales expects to receive cash from sales amounting to:
36

following month. Labor costs will run P60,000 per month, and fixed overhead is P30,000 per A. P606,000 C. P398,100
month. Interest payments on the debt will be P45,000 for both March and June. Finally, Atlanta’s B. P408,900 D. P359,100
sales force will receive a 3 percent commission on total sales for the first six months of the year, to
be paid on June 30. . The cumulative amount of marketable securities purchased as of July 31 amounts to:
37

A. P126,000 C. P143,300

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 Budgeting

B. 132,500 D. P 0 into marketable securities. The average tax rate is 40 percent, and the company usually pays out
50 percent of net income in dividends to stockholders. Marketable securities are sold before funds
. The amount of loan to be obtained to maintain a balance of P50,000 cash as of September 30
38
are borrowed when a cash shortage is faced. Ignore the interest on any short-term borrowings.
will be: Interest on the long-term debt is paid in March, as are taxes and dividends.
A. P109.4 C. P 9.4
B. P 59.4 D. P 0.0 As of year-end, the Ingo Corporation balance sheet was as follows:
Ingo Corporation
Question Nos. 39 through 45 are based on the following data: Balance Sheet
The Ingo Corporation makes standard-size 2-inch fasteners, which it sells for P155 per thousand. December 31, 2006
Irine Tee, the major stockholder, manages the inventory and finances of the company. She
estimates sales for the following months to be: ASSETS
Current assets:
January P263,500 (1,700,000 fasteners) Cash P 30,000
February P186,000 (1,200,000 fasteners) Accounts receivable 320,000
March P217,000 (1,400,000 fasteners) Inventory 237,800
April P310,000 (2,000,000 fasteners) Total current assets 587,800
May P387,500 (2,500,000 fasteners) Plant and equipment, net of accumulated depreciation of P200,000 800,000
Total Assets P1,387,800
Last year Ingo Corporation's sales were P175,000 in November and P232,500 in December
(1,500,000 fasteners). LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable P 93,600
Ms. Tee is preparing for a meeting with Peninsula Banking Corporation to arrange the financing for Long-term debt, 8% 400,000
the first quarter. Based on her sales forecast and the following information she has provided, you Common stock 504,200
have to prepare a monthly cash budget, a monthly and quarterly pro forma income statement, a Retained earnings 390,000
pro forma quarterly balance sheet, and all necessary supporting schedules for the first quarter. Total Liabilities and Stockholders’ Equity P1,387,800

Past history shows that Ingo Corporation collects 50 percent of its accounts receivable in the . The budgeted production respective to each month of the first quarter of the coming year are:
39

normal 30-day credit period (the month after the sale) and the other 50 percent in 60 days (two A. 1,400,000; 2,000,000; 2,500,000 C. 2,500,000; 2,000,000; 1,400,000
months after the sale). It pays for its materials 30 days after receipt. In general, Ms. Tee likes to B. 1,400,000; 2,500,000; 2,000,000 D. 2,000,000; 1,400,000; 2,500,000
keep a two-month supply of inventory in anticipation of sales. Inventory at the beginning of
December was 2,600,000 units. (This was not equal to her desired two-month supply.) . The amount of accounts payable paid in March for the purchase of materials is:
40

A. P150,000 C. P104,000
The major cost of production is the purchase of raw materials in the form of steel rods, which are B. P120,000 D. P130,000
cut, threaded, and finished. Last year raw material costs were P52 per 1,000 fasteners, but Ms.
Tee has just been notified that material costs have risen, effective January 1, to P60 per 1,000 . The expected cash collections on accounts receivable in the month of February are:
41

fasteners. The Ingo Corporation uses FIFO inventory accounting. Labor costs are relatively A. P224,750 C. P 93,000
constant at P20 per thousand fasteners, since workers are paid on a piecework basis. Overhead is B. P248,000 D. P186,000
allocated at P10 per thousand units, and selling and administrative expense is 20 percent of sales.
Labor expense and overhead are direct cash outflows paid in the month incurred, while interest . The amount of accounts receivable outstanding as of March 31, 2007 is:
42

and taxes are paid quarterly. A. P217,000 C. P310,000

B. P224,750 D. P108,500
The corporation usually maintains a minimum cash balance of P25,000, and it puts its excess cash
443
 Budgeting

. The cost of goods sold for the first quarter of the coming year amounts to:
43

A. P363,800 C. P426,400 . How much cash can Russon plan to collect from accounts receivable during July?
48

B. P453,600 D. P373,400 A. P574,000 C. P619,000

B. P662,600 D. P608,600
. The total cash and marketable securities as of January 31 will be:
44

A. P45,450 C. P91,800
B. P25,000 D. P54,450

. The expected net income during the first quarter of the coming year is:
45

A. P 91,080 C. P 96,840
B. P161,400 D. P151,800

Question Nos. 46 through 48 are based on the Russon Corporation, a retailer whose sales are all
made on credit. Sales are billed twice monthly, on the 10th of the month for the last half of the
prior month’s sales, and on the 20th of the month for the first half of the current month’s sales. The
terms of all sales are 2/10, net 30. Based upon past experience, the collection of accounts
receivable is as follows:

Within the discount period 80%

On the 30th day 18%
Uncollectible 2%

Russon’s average markup on its products is 20% of the sales price. All sales and purchases occur
uniformly throughout the month. The sales value of shipments for May and the forecasts for the
next four months follow:
May (actual) P500,000
June 600,000
July 700,000
August 700,000
September 400,000
Russon purchases merchandise for resale to meet the current month’s sales demand and to
maintain a desired monthly ending inventory of 25% of the next month’s sales. All purchases are
on credit with terms of net/30. Russon pays for 50% of a month’s purchases in the month of
purchase and 50% in the month following the purchase.

. How much cash can Russon plan to collect in September from sales made in August?
46

A. P337,400 C. P400,400
B. P343,000 D. P280,000

. The budgeted peso value of Russon’s inventory on August 31 will be

47

A. P110,000 C. P112,000
B. P 80,000 D. P100,000
444
 Budgeting

5
. Answer: A
445
 Budgeting

Total payments for purchases in June P140,000

Deduct payments applicable to purchase of:
June (P100,000 x 0.6) P60,000
May (P200,000 x 0.30) 60,000 120,000
Payments applicable to April purchase P 20,000
Credit purchase in April: P20,000  0.10 P200,000
6
. Answer: C
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 Budgeting

Budgeted sales, First Quarter 120,000 units

Add Required Ending Finished goods: 30% x 160,000 48,000 units
Total units required 168,000 units
Less Beginning Finished goods 36,000 units
Budgeted production in units 132,000 units
4
. Answer: D
Cost of sales P120,000
Add Desired ending inventory 42,000
Total available for sale 162,000 Beginning inventory P 62,000
Deduct Budgeted purchases 100,000
447
 Budgeting

3
. Answer: A
Cost of goods sold P750,000 x 0.6 P450,000
Add Ending Inventory P800,000 x 0.6 x 0.5 240,000
Total available for sale P690,000 Add Desired ending inventory 140,000
Deduct Beginning inventory P450,000 x 0.5 225,000 Total cost of goods available for sale 660,000
Budgeted purchases, February P465,000 Deduct Beginning inventory 130,000
Budgeted purchases P530,000
2
. Answer: A
7
Cost of units sold (0.65 x P800,000) P520,000 . Answer: C
448
 Budgeting

Sales for three-month period:

July 400,000
August 400,000 x 1.05 420,000
September 420,000 x 1.05 441,000
Total 1,261,000

Inventory, September 30 (441,000 x 1.05 x 0.8) 370,440

Total Requirements 1,631,440
Less July Inventory 300,000
Budgeted Production 1,331,440
8
. Answer: C
Beginning Inventory (8000 x 3.5) 28,000
Required Purchases 8,000
Direct Materials Used for Production (8000 x 3) (24,000)
Desired Ending Inventory 12,000
9
. Answer: C
LLMMNNBudgeted production622,000622,000622,000Required materials per unit of product0.501.001.2Materials required311,000622,000746,400Unit cost P0.60 P1.70 P1.00 Peso amounts
of materials used by units produced
P186,600
P1,057,400
P746,400
Budgeted sales in units 640,000
Add Finished goods, end 90,000
Total 730,000
Deduct Finished goods, beginning 108,000
Budgeted production 622,000
13
. Answer: D
Raw materials required by June production: 1,200 x 2 2,400
Add: Ending materials inventory 1,300 x 2 . 1.5 3,900
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 Budgeting

10
Total materials required 6,300
. Answer: D
Required pounds by production 180,000
Ending raw materials required 60,000
Beginning raw materials ( 30,000)
Budgeted purchases 210,000
11
. Answer: B
Materials required by June production 1,300 x 2 2,600
Add Ending raw materials inventory 1,600 x 2 x 0.5 1,600
Total materials required 4,200
Deduct Beginning materials inventory 1,300 x 2 x 0.5 1,300
Materials to be purchased 2,900
12
. Answer: D
Budgeted sales 18,000
Add Finished goods inventory, end 11,400
Total 29,400
Deduct Finished good inventory, beginning 15,000
Budgeted production 14,400

Raw materials required by production (14,400 x 6  0.9) 6,000

Desired Raw materials inventory end 24,400
Total 120,400
Deduct Raw materials inventory, beginning 21,000
Budgeted purchase of raw materials 99,400
14
. Answer: A
Budgeted sales 300,000
Less decrease in Finished goods inventory 10,000
Budgeted production 290,000

Material Q required by production 290,000 x 3 870,000

450
 Budgeting

Deduct Beginning material inventory 2,400 x 1.5 3,600

15
. Answer: B
Materials required by production 500,000 x 2 1,000,000
Increased in materials inventory (50,000 – 40,000) 10,000
Purchases 1,010,000
16
. Answer: B
Materials required by 2nd Quarter’s production 45,000 x 2.5 kgs. 112,500
Add: Materials inventory, end: 40,000 x 2.5 x0.25 25.000
Total materials required 137,500
Less: Materials inventory, beginning: 112,500 x 0.25 28,125
Total budget purchases in kilograms 109,375
17
. Answer: D
Under flexible budget, analysis should be based on actual level achieved.
Indirect labor cost per unit (P360,000  200,000 units) P1.80
Flexible budget allowance: 14,500 units x P1.80 P26,100
18
. Answer: C
Cash sales (March) 0.2 x P420,000 P 84,000
Collections of account sales:
March sales: (P420,000 x 0.8 x 0.7) 235,200
February sales: (P300,000 x 0.8 x 0.25) 60,000
January sales: (P240,000 x 0.8 x .05) 9,600
Total cash from sales P388,800
19
. Answer: B
Total cash collections P57,000
Deductions collections on September sales (P80,000 x 0.6) 48,000
Collections applicable to July and August sales P 9,000
Credit sales in July: P9,000  2  0.15 P30,000

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 Budgeting

Budgeted materials purchase 2,700

21
. Answer: A
Collections sales of:
June: P8,000 x 0.7 P5,600
May: P7,000 x 0.3 2,100
Total collections from sales P7,700
22
. Answer: B
October 90,000 x .95 P 85,500
November 100,000 x .85 85,000
December 85,000 x .70 59,500
Fourth quarter sales collected in fourth quarter P230,000
23
. Answer: D
Cash sales P 70,000
Collections from account sales:
January (P340,000 x 0.60) 204,000
December (P50,000 x 30/40) 37,500
November 20,000
Total cash receipts in January P331,500
24
. Answer: B
The balance of Accounts Receivable, based on the collection pattern for Liberal Sales Company, equals 40 percent of credit sales for that month:
P1,500,000 x 0.8 x 0.4 = P480,000
25
. Answer: C
Gross receivable collected month’s sales
November 2,000,000 x .12 P 240,000
October 1,800,000 x .75 1,350,000
September 1,600,000 x .06 96,000
August 1,900,000 x .04 76,000
Total credit P1,762,000
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 Budgeting

Less decrease in Material Q inventory 60,000 – 80,000 20,000

Budgeted purchase in pounds, Material Q 850,000
26
. Answer: A
The balance of Accounts Receivable as of January 31, its first month of operations, will increase by P400,000 because the first collection on account sales will be in February.
However, a question of how much increase in Accounts Receivable in February will equal to the difference between the February credit sales and 70% of January sales.
27
. Answer: D
Cost of goods sold P1,680,000
Deduct desired decrease in inventories 70,000
Budgeted purchases P1,610,000
Add decrease in Accounts Payable 150,000
Budgeted payments for purchases P1,760,000
28
. Answer: A
November costs (P1,952,000 – P288,000) x 0.75 P1,248,000
October costs (P1,568,000 – P288,000) x 0.25) 320,000
Total disbursements P1,568,000
29
. Answer: C
Beginning Cash P 20,000
Add:Cash collected on June's sales (P300,000 x .8 x .98) 235,200
Cash collected on May's sales ((P300,000/1.25) x .2) 48,000 283,200
Total P303,200
Less:Cash paid on June's purchases (P240,000 x .6 x .99) 142,560
Cash paid on May's purchases (P200,000 x .4) 80,000 222,560
Ending cash balance P80,640
30
. Answer: C
JanuaryFebruaryBudgeted sales11,90011,400Add: Ending inventory (130%)14,82015,600Total26,72027,000Less: Beginning inventory15,47014,820Budgeted purchases (units)11,25012,180Unit
purchase price 200 200 Budgeted peso purchasesP2,250,000P2,436,000
Budgeted inventories:
December 31 130% x 11,900 15,470
January 31 130% x 11,400 14,820
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 Budgeting

20
31
. Answer: D
. Answer: D
Payments for:
February purchases 54% x P2,436,000 P1,315,440
January purchases 46% x P2,250,000 1,035,000
Total payments for purchases P2,350,440
Selling, general and administrative expenses:
February: [(P3,420,000 x 0.15) – P20,000]0.54 266,220
January: [(P3,570,000 x 0.15) – P20,000]0.46 237,130
Total cash disbursements P2,853,790
32
. Answer: A
Billings of December 31:
Collections with 3% discount P3,630,000 x 0.6 x 0.97 P2,112,660
Collections end of January P3,630,000 x 0.25 907,500
Billings of November 30: P3,540,000 x 0.09 318,600
Total collections P3,338,760
33
. Answer: B
Budgeted March sales 12,000
Add: Ending inventory units 15,860
Total units required 27,860
Less: Beginning inventory units 15,600
Budgeted purchases in units, March 12,260
34
. Answer: A
Payments for purchases in the month of:
December (0.2 x P120,000 x 0.6) P14,400
January (0.2 x P160,000 x 0.4) 12,800
Total January disbursements for purchases P27,200
35
. Answer: C
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 Budgeting

Collections from:
January sales (P860,000 x 0.8 x 0.75) P516,000
36
. Answer: C
June cash sales (P390,000 x 0.1) P 39,000
Collections from account sales:
April sales (P390,000 x 0.9 x 0.7) 245,700
May sales (P420,000 x 0.9 x 0.3) 113,400
Total cash receipts, June P398,100
37
. Answer: B
Marketable securities purchased on:
June P 5,600
July 126,900
Cumulative purchase of MS P132,500
38
. Answer: A
Cash Budget (P’000)
JuneJulyAugSeptCash receiptsP398.1P404.9P382.2P374.9Cash disbursements 367.5 278.0 296.5 702.5Net cash inflow (outflow) 30.6 126.9 85.7( 327.6)Beginning cash balance 25.0 50.0 50.0
50.0Cumulative cash balance 55.6 176.9 135.7( 277.6)M/S sold (purchased) - 5.6- 126.9- 85.7 218.2Cash loan 0.0 0.0 0.0 109.4Cash balance, endP 50.0P 50.0P 50.0P 50.0
Cash Receipts (P’000)
JuneJulyAugSeptAccount sales (90%)P351.0P315.0P378.0P369.0Cash salesP 39.0P 35.0P 42.0P 41.0Collection of accounts First month (30%) 245.7 105.3 94.5 113.4 Second month (70%)
113.4 264.6 245.7 220.5TotalP398.1P404.9P382.2P374.9
Cash Payments (P’000)
JuneJulyAugSeptPurchasesP210.0P240.0P320.0P230.0First month (45%)P 99.0P 94.5P108.0P144.0Second month (55%) 110.0 121.0 115.5 132.0 Total purchases paid 209.0 215.5 223.5
276.0Labor 58.5 52.5 63.0 61.5General overhead 10.0 10.0 10.0 10.0Interest 35.0 35.0Cash dividend 25.0Taxes 30.0 30.0Purchase of equipt. 290.0Total
paymentsP367.5P278.0P296.5P702.5
39
. Answer: A
Budgeted Production
JanuaryFebruaryMarchTotalSales1,700,0001,200,0001,400,0004,300,000Inventory, end2,600,0003,400,0004,500,0004,500,000Total4,300,0004,600,0005,900,0008,800,000Inventory, beg.
(2,900,000(2,600,000(3,400,000(2,900,000Budgeted production1,400,0002,000,0002,500,0005,900,000
40
. Answer: B
Payments for Purchases:
January (December purchases - 1,800,000 x 0.052) P 93,600
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 Budgeting

December sales (January 1 Accounts) 299,000

41
. Answer: B
Budgeted Collections on Accounts Receivable
JanuaryFebruaryMarchTotalNovember sales87,50087,500December sales116,250116,250232,500January sales131,750131,750263,500February sales
93,00093,000Total203,750248,000224,750676,500
42
. Answer: C
A month’s sales is collected 50 percent each in the first and second month. Therefore, the accounts receivable outstanding as of March 31 includes March’s sales as well as 50 percent of February
sales.
February’s accounts (P186,000 x 0.5) P 93,000
March’s sales 217,000
Outstanding accounts receivable, March 31 P310,000
43
. Answer: A
Current unit cost per 1,000
Material P 52
Labor 20
Overhead 10
Total P 82

Effective January 1, 2007, the price of materials will be raised to P60. The unit cost for 2007 production will be P90. Since the sales of January and February come from December production, only the
March sales will have cost of P90 per thousand.

January and February cost of goods sold (1,700 + 1,200) x P82 P237,800
March 1,400 x P90 126,000
Cost of goods sold (first quarter) P363,800
44
. Answer: A
JanuaryFebruaryMarchCash collections203,750248,000224,750Cash disbursements Payments for materials93,60084,000120,000 Labor expenses28,00040,00050,000 Overhead14,00020,00025,000
Selling & administrative52,70037,20043,400 Interest8,000 Taxes64,560 Dividends . . 48,420 Total disbursements188,300181,200359,380 Net Cash Inflow
(Outflow)15,45066,800(134,630)Cash Balance, Beginning30,00025,00025,000Cumulative cash balance45,450 91,800(109,630)Marketable securities20,45066,800( 87,250) Cumulative
MS20,45087,250Borrowings 0 0 47,380Cash Balance, End25,000112,25025,000
45
. Answer: C
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 Budgeting

Collections of credit sales 815,000

Cash sales (P860,000 x 0.2) 172,000 Labor costs 60,000
Total cash received P987,000 Fixed Overhead 30,000
Interest payments 45,000
Commission (0.03 x P1,020,000) 30,600
February 28 130% x 12,000 15,600 Total disbursements P207,200
March 31 130% x 12,200 15,860
February (January purchases – 1,400,000 x 0.06) 84,000
Payments for purchases: March (February purchases – 2,000,000 x 0.06) 120,000
May purchase (0.2 x P200,000 x 0.6) P24,000 Total for the quarter P297,600
June purchase (0.2 x P220,000 x 0.4) 17,600
Total 41,600 Proforma Income Statement
46
. Answer: A
August sales
Billed 8/20 P350,000 x 18% P 63,000
Billed 9/10 P350,000 x 80% x 98% 274,400
Collections in Sept of Aug sales P337,400
47
. Answer: B
Russon provides 25 percent of next month’s quantity sales.
25% x P400,000 x 80% = P80,000
48
. Answer: D
May sales billed June 10 250,000x18% P 45,000
June Sales:
Billed June 20 300,000 x 18% 54,000
Billed July 10 300,000 x .80 z .98 235,200
July sales
Billed July 20 P350,000 x .80 x .98 P274,400
July Collections P608,600

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 Budgeting

JanuaryFebruaryMarchTotalSales263,500186,000217,000666,500Cost of goods
sold139,40098,400126,000363,800Gross profit124,10087,60091,000302,700Selling expenses,
20%52,70037,20043,400133,300Operating income71,40050,40047,600169,400Interest
expense2,6672,6672,6668,000Income before tax68,73347,73344,934161,400Income tax,
40%27,49319,09317,97464,560Net income41,24028,64026,96096,840
458