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BUDGETING EXERCISES

Problem A. ABC Corporation made the following projections on its sales in the coming year, 2003:

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 uncollectible. The account
receivables balance on December 31, 2002 is estimated to be P640,000; 25% of which is coming from
the 3rd quarter sales of 2003.

Required:

Schedule 1. Budgeted sales in units and in pesos per quarter and for the year 2003.

Schedule 2. Budgeted collections from customers per quarter and for the year 2003.

PROBLEM B. Charmaine Corporation has budgeted the sales of its product in 2003 up to the first quarter
of 2004 as follows:

2003 Sales in units

1st quarter 60,000

2nd quarter 80,000

3rd quarter 70,000

4th quarter 90,000

2004

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 materials
inventory of material AX-23 to produce unit product. The materials inventory at the start of the ear 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 purchase and avail of the 2% trade discount. The
remaining balance is paid in the following quarter. The account payables at December 31, 2002 are
recorded at P81,000.
Required:

Schedule 1. Budgeted production per quarter and in total for the year 2003

Schedule 2. Budgeted materials purchases per quarter and in total for the year 2003

Schedule 3. Budgeted payments to merchandise suppliers for the year 2003

PROBLEM C. Charmaine Corporation pays its production personnel at a rate of P30 per direct labor hour.
It takes 0.25 standard hours to complete a finished unit. The corporation pays its labor costs in the
month the payroll is recorded.

The standard variable overhead rate is P5 per direct labor hour and the standard fixed overhead rate is
P4 per direct labor hour. The company’s normal capacity is 75,000 units or 18,750 direct labor hours.
Thirty percent of the total fixed overhead is non-cash. Overhead costs are paid 90% in the quarter the
overhead is incurred and the remainder is paid in the month following the quarter of incurrence. The
overhead costs incurred in the fourth quarter of 2002 are P84,000 variable and P70,000 fixed.

The budgeted production in units for 2003 are estimated at: Q1 64,000; Q2, 78,000 units; Q3, 74,000
units; and Q4 87,000 units.

Required:

Schedule 1. Budgeted labor costs per quarter and in total for the year 2003

Schedule 2. Budgeted factory overhead in quarter and in total for the year 2003

Schedule 3. Budgeted cash payments for labor and overhead in quarter and in total for the year 2003

PROBLEM D. Consider the data and solutions in problems 1 to 3

The standard costs of Charmaine Corporation are summarized below:

Unit Rate Cost per unit


Direct Material 3 1.20 per pound 3.60
Direct Labor .25 hr .20 per hr 0.05
Variable factory .25 hr 5.00 per hr 1.25
overhead
Fixed factory overhead .25 4.00 per hr 1.00
Total 5.90

The standard costs are the same from year 2002 to 2003. The work in process inventories are estimated
at 10% of the current production put into process. The work-in-process on December 31, 2002 is
determined at P75,000.

Operating expenses are budgeted at 20% of sales in a quarter. Non-cash operating expenses including
accruals and prepayments are estimated at 20% of sales. Other income from operations are projected at
5% of sales. The estimated accrued and prepaid items are as follows:
Q4, 2001 Q1,2002 Q2,2002 Q3, 2002 Q4,2002
Accrued Exp 12,000 15,000 22,000 14,000 15,000
Prepaid Exp 3,000 6,000 6,500 7,400 8,800
Accrued Inc 4,400 900 3,500 7,900 8,600
Prepaid Inc 2,100 3,300 4,400 9,700 8,200
The Income tax rate is 40%

Required:

Schedule 1. Budgeted cost of goods manufactured and sold for the year 2003

Schedule 2. Budgeted income statement for the year 2003

Schedule 3. Budgeted cash payments to operating expenses for the year 2003

Schedule 4. Budgeted cash receipts from other revenues for the year 2003

PROBLEM E. Consider all the data and solutions in samples 1 to 4. Other cash transactions are:

Non-current assets are to be acquired in the second and third quarters of 2003 in the amounts of
P200,000 and P145,000, respectively. Some old non-current assets are to be sold at its book value for
P174,000 in the third quarter.

Dividends are to be paid in February for P400,000 and July for P250,000.

The minimum cash balance is set at P400,000. In case of deficit, the corporation can avail a credit line in
multiples of P25,000 from a financing institution at a rate of 14% per annum. Interest is paid quarterly
based on the outstanding balance at the beginning of the quarter. Payments to borrowings in multiples
of P25,000 are made whenever cash is available determined at the beginning of the quarter. The cash
balance on January 1, 2002 is expected to equal the minimum cash balance.

Required:

Schedule 1. Cash budget for the year 2003

Schedule 2. Budgeted Statement of cash flows for the year 2003

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