TAKE HOME QUIZ

MANAGERIAL ACCOUNTING

Instruction: All answers should be in yellow paper. Encircle your final answer.

Problem 1(10 points)

John International is in the construction business. In 2011, it is expected that 30 percent of a
month’s sales will be received in cash, with the balance being received the following month. Of the
purchases, 50 percent are paid the following month, 40 percent are paid in two months, and the
remaining 10 percent are paid during the month of purchase.

The sales force receives $1,500 a month base pay plus a 4 percent commission. Labor expenses are
expected to be $4,000 a month. Other operating expenses are expected to run about $4,500 a
month, including $500 for depreciation. The ending cash balance for 2010 was $18,000.

Sales Purchases
2010-Actual
November $100,000 $ 60,000
December 150,000 70,000
2011-Budgeted
January $ 50,000 $ 80,000
February 80,000 60,000
March 60,000 70,000

Required:
1. Determine the amount of cash receipts for the month of January.
2. How much is the total cash disbursements for the month of January?
3. Assuming the total cash receipts for the month of February is $59,000, while the total cash
disbursements is $86,700, how much is the cash balance at the end of February?
4. Assuming the total cash receipts for the month of March is $74,000, while the total cash
disbursements is $80,900, how much is the cash balance at the end of March?
5. Determine the months that the company would either borrow or invest cash. Explain.

Problem 2 (16 points)

Bi Love Kita Company is in the process of preparing its operating budgets for 2006. The company
produces and sells only one product “Habibi”. The following data are taken from its statement
assumptions:
a. Sales and collections: The product is currently sold at a unit price of P150. The following
estimates are developed by the Market Research Department as probable sales in January 2006:
Unit Sales Probability
40,000 30
50,000 50
60,000 20
Sales in the succeeding months are expected to increase by 10% from each month thereafter,
except for the month of April which is expected to increase by 20% from the immediately preceding
month.
 Eighty percent (80%) of sales are to be made on credit with terms of 2/10,n/40. Billings are
made on the date of sales and collections are made as follows:
40% in the month of sales with 55% paying within the discount period
50% in the first month after sale
5% in the second month after sale
5% uncollectibles
The accounts receivable balance on December 31, 2005 is P 4,000,000 with 75% of it is coming
from the December 2005 sales.
b. Production: The finished goods inventory at the end of each month is set at 80% of the next
months sales.
c. Materials. A unit of product Habibi needs 4lbs of material X costing P 5 per pound. Materials
inventory at the end of each month is estimated to be 20% of the next months needs plus
20,000 lbs. Payments to material suppliers are 60% in the month of purchase and 40% in the
following month of purchase. The accounts payable balance on December 31, 2005 is P600,000.
d. Labor. It takes 2 hours to produce a unit of product Habibi. On the average, production workers
are paid at a rate of P40 per hour. Payroll cost amounting to 20% of the total payroll cost per
month are estimated to be paid in the next month.
e. Factory overhead. The standard variable factory overhead rate is P5 per hour. Total budgeted
fixed overhead is set at P6 million to be incurred evenly during the year. The company’s normal
capacity is 50,000 units per month.

Required: Budgeted operating and financial data for the months of January, February and March
2006:
a. Sales in units and in pesos , net of allowance for doubtful accounts and discounts.
b. Collections from customers
c. Production
d. Material purchases in units and in pesos.
e. Payments to material suppliers.
f. Direct Labor
g. Factory Overhead
h. Total Production Cost

Problem 3 (8 points)

Panga Company asked you to interpret the following ratios provided by its accountant on
December 31, 2006:

Acid Test Ratio 1.2

Time Interest Earned 8
Gross Margin Ratio 40%
Inventory Turnover 6
Debt to Equity Ratio 0.9 to 1
Ratio of Operating Expenses to Sale 15%

Total stockholders equity on December 31, 2006 was P900,000. Gross margin for 2006
amounted to P600,000. Beginning balance of merchandise inventory was P 200,000. The
company’s long term liabilities consisted of bonds payable with interest at 15%. You decided to
reconstruct the company’s financial statements based on the limited information given to serve
as basis for further analysis.

1. Panga’s operating income in 2006 is? 2 points

2. Panga’s bonds payable balance at December 31, 20016? 2 points
3. The current liabilities balance at December 31, 2006? 2 points
4. The company’s current assets amount to? 2 points

Problem 4 (5 points)
Selected data from the year end financial statements of World cup Corporation are presented
below. The difference between the average and ending inventories is immaterial.
Current Ratio 2.0
Quick Ratio 1.5
Current Liabilities P 6,000,000
Inventory Turnover based on COS 8 times
Gross Profit margin 40%
World’s net sales for the year were?

Problem 5 ( 8 points)
Z company, which is interested in measuring overall cost of capital and has gathered the following data.
Under the terms described below, the company can sell unlimited amounts of all instruments.
 Z can raise cash by selling P 1,000, 8%,20 year bonds with annual interest payments. In selling
the issue, an average premium of P30 per bond would be received and the firm must pay
floatation cost of P30 per bond. The after tax cost of funds is estimated to be 4.8%
 Z can sell 8% preferred stock at P105 per share. The cost of issuing and selling the preferred
stock is expected to be P5 per share.
 Z’s common stock is currently selling for P100 per share. The firm expects to pay cash dividends
of P7 per share next year and the dividends are expected to remain constant. The stock will be
underpriced by P3 per share and floatation cost are expected to amount to P5 per share.
 Z expected to have available P100,000 of retained earnings in the coming year. Once these
retained earnings are exhausted, the firm use common stock as the form of common equity
financing.
 Z’s preferred capital structure is
 Long-term debt 30%
Preferred Stock 20
Common Stock 50

Questions:
a. The cost of funds from the sale of common stock for Z Company is
b. The cost of funds from retained earnings for Z Company is
c. If Z needs a total of P200,000 the firms weighted average cost of capital would be
d. If Z needs a total of P1,000,000, the firms weighted average cost of capital would be?

Problem 6(6 points)

An equipment costing P 500,000 with a residual value of P 30,000 at its useful life of five years is
expected to bring the following net cash inflows:
First year P 350,000
Second Year 250,000
Third Year 150,000
Fourth Year 100,000
Fifth Year 50,000
The company uses a 12% discount rate. The company expects to spend P200,000 for major repairs of
the equipment at the beginning of year 3.
Required:
a. Net Present Value
b. Profitability Index
c.Net Present Value Index

Problem 7 (10 points)

A new equipment costing P800,000 with 5 years useful life and P40,000 salvage value at the end of five
years is expected to bring the following cash inflows after tax:
Year Net Cash Inflows
01 P 350,000
02 300,000
03 250,000
04 150,000
05 80,000
Required: Determine the discounted rate of return
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