Solar Tech, Inc. manufactures a special ceramic tile used as a component in residential energy systems.

1.
The expected pattern of sales for the next year 2015 is as follows:
Sales in Units
Q1
2,000
Q2
6,000
Q3
8,000
Q4
4,000
2.
Each tile sells for P25.00. All sales are on account, and Solar Techs experience with cash
collection is that 60% of each quarter sales are collected during the same quarter as the sale.
The remaining 40% of sales is collected in the quarter after the sale. Sales in the 4 th quarter of
2014 are expected to be P100,000(4,000 units).
3.
Solar tech desires to have 10% of the following quarters sales needs in finished goods
inventory at the end of each quarter. On December 31, 2014, solar tech expects to have 200
units in inventory.
4.
Each tile requires 2 kilograms of raw material. Solar tech desires to have 10% of the next
quarters raw material in inventory at the end of each quarter. On December 31, 2014, Solar tech
expects to have 480 kilograms of raw materials in inventory.
5.
The raw material price is P5.00 per kilogram. The company buys its raw material on account
and pays 70% of the resulting accounts payable during the quarter of the purchase. The
remaining 30% is paid during the following quarter. The raw material purchases in the 4 th of 2014
are expected to be P36,600.
Required: Prepare the following budget schedules for 2015.
1.
Sales Budget
2.
Cash receipts budget
3.
Production budget
4.
Direct material budget
5.
Cash disbursement budget for raw material purchases.

Budget a realistic plan, expressed in quantitative terms, for a certain future period of time.
Advantages of Budgeting
1.
It compels periodic planning (force management to plan).
2.
It enhances cooperation, coordination, and communication.
3.
It enables members of the organization to be aware of business costs.
4.
It directs the activities toward the achievement of organizational goals.
Limitations of Budgeting
1.
Merely estimates, requiring a certain amount of judgement.
2.
Requires cooperation and participation of all members of the organization.
Budget Committee
Composed of key management persons who are responsible for overall policy matters relating
to the budget program and for coordinating and the preparation of the budget itself.
Usually composed of sales manager, production manager, chief engineer, treasurer, and
controller.
Master Budget
Represents the overall plan of the organization for a given budget period.
Composed of the operating budget and financial budget.
Types of Budgets and Other Budgeting Concepts
1.
Continuous (Rolling) Budget a budget that is revised on a regular (continuous) basis.
2.
Fixed Budget based only on one level of activity.
3.
Flexible Budget series of budgets prepared for many levels of activity.
4.
Incremental Budgeting a budgeting process wherein the current periods budget is simply
adjusted to allow for changes planned for the coming period.
5.
Zero-based budgeting a budget is prepared every period from a base of zero. All
expenditures must be justified regardless of variances from previous periods.
6.
Life-cycle budget a products revenues and expenses are estimated over its entire life cycle.
Value Chain: Research and Development design production marketing distribution
customer service
7.
Activity-based budgeting applies activity-based costing principles to budgeting.
8.
Kaizen budgeting kaizen is a Japanese term that means continuous improvement.
Continuous improvement - ongoing effort to improve products, services or processes.
Budget Manual describes how a budget is to be prepared. It usually includes:
1.
Budget Planning Calendar schedule of activities for the development and adoption of the
budget.
2.
Distribution instructions
Budget Report compares actual performance with budgeted performance.

Sales
Budget
Ending
Inventory Direct
Capital
Budget: RM,Material
Expenditur
Cash
WIP
es and FGBudget
Budget

Production
Budgeted
Direct
Budget
Budget
Statement
Labor
edof
Budgeted
Cost
Budget
Of
Balance
Cash
Income
Goods

Factory
Overhe
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