MANAGEMENT ACCOUNTING - Solutions Manual CHAPTER 15 FUNCTIONAL AND ACTIVITY-BASED BUDGETING I Questions No Planning and control are different, although related, concepts Planning involves developing objectives and formulating steps to achieve those objectives Control, by contrast, involves the means by which management ensures that the objectives set down at the planning stage are attained Budgets have a dual purpose, for planning and for following up the implementation of the plan The great benefits from budgeting lie in the quick investigation of deviations and in the subsequent corrective action Budgets should not be prepared in the first place if they are ignored, buried in files, or improperly interpreted Two major features of a budgetary program are (1) the accounting techniques which developed it and (2) the human factors which administer it The human factors are far more important The success of a budgetary system depends upon its acceptance by the company members who are affected by the budget Without a thoroughly educated and cooperative management group at all levels of responsibility, budgets are a drain on the funds of the business and are a hindrance instead of help to efficient operations Manufacturing overhead costs are budgeted at normal operating capacity, and the costs are applied to the products using a predetermined rate The predetermined rate is computed by dividing a factor that can be identified with both the products and the overhead into the overhead budgeted at the normal operating capacity Budgets may also be used in costing products in a standard cost accounting system The production division operates to produce the products that are sold Production and sales must be coordinated Products must be manufactured so that they will be available to meet sales delivery dates Activity of the production division will depend upon the sales that can be made Also, the sales division is limited by the capabilities 15-1 Chapter 15 Functional and Activity-Based Budgeting of the production department in manufacturing products Successful operations depend upon a coordination of sales and production Labor hour required for production can be translated into labor pesos by multiplying the number of hours budgeted by the appropriate labor rates The rates to be used will depend upon the rates established for job classifications and the policy with respect to premium pay for overtime or shift differences A long-range plan for the acquisition of plant assets is broken down and entered in the current budget as the plan unfolds The portion of the plan which is to be executed in the next year is included in the budget for that year A budget period is not limited to any particular unit of time At a minimum, a budget should cover at least one operating cycle For example, a budget should not cover a period when purchasing activity is high and omit the period when sales volume and cash collection are relatively high The budget period should encompass the entire cycle extending from the purchasing operation to the subsequent sale of the products and the realization of the sales in cash Ordinarily, a budget of operations is prepared for a year which in turn is divided into quarters and months Long-term budgets, such as budgets for projects or capital investments, may extend five to ten years or more into the future A rolling budget or a progressive budget or sometimes called continuous budget, is a budget which is prepared throughout the year As one month elapses, a budget is prepared for one more month in the future At any one time for example, the company will have a budget for one year into the future, when July of one year is over, a budget for the following July will be added at the other end of the budget This process of adding a new month as a month expires is continuous 10 Variances that are revealed by a comparison of actual results with a budget are investigated if it appears that an investigation is warranted The investigation may show that stricter control measures are needed or that some weaknesses in the operation should be corrected It may also reveal that the budget plan should be revised The comparison is one step in the control and direction of business operations 11 A comparison of actual results with a budget can contribute information that can be applied in the preparation of better budgets in the future Subsequent investigation of variances provides management with a better knowledge of operations This knowledge can be applied in the preparation of more realistic budgets for subsequent fiscal periods 15-2 Functional and Activity-Based Budgeting Chapter 15 12 A self-imposed budget is one in which persons with responsibility over cost control prepare their own budgets, i.e., the budget is not imposed from above The major advantages are: (1) the views and judgments of persons from all levels of an organization are represented in the final budget document; (2) budget estimates generally are more accurate and reliable, since they are prepared by those who are closest to the problems; (3) managers generally are more motivated to meet budgets which they have participated in setting; (4) self-imposed budgets reduce the amount of upward “blaming” resulting from inability to meet budget goals One caution must be exercised in the use of self-imposed budgets The budgets prepared by lower-level managers should be carefully reviewed to prevent too much slack 13 No, although this is clearly one of the purposes of the cash budget The principal purpose is to provide information on probable cash needs during the budget period, so that bank loans and other sources of financing can be anticipated and arranged well in advance of the actual time of need 14 Zero-based budgeting requires that managers start at zero levels every year and justify all costs as if all programs were being proposed for the first time In traditional budgeting, by contrast, budget data are usually generated on an incremental basis, with last year’s budget being the starting point 15 A budget is a detailed quantitative plan for the acquisition and use of financial and other resources over a given time period Budgetary control involves the use of budgets to control the actual activities of a firm 16 Budgets communicate management’s plans throughout the organization Budgets force managers to think about and plan for the future The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively The budgeting process can uncover potential bottlenecks before they occur Budgets coordinate the activities of the entire organization by integrating the plans of its various parts Budgeting helps to ensure that everyone in the organization is pulling in the same direction Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance 15-3 Chapter 15 Functional and Activity-Based Budgeting 17 A master budget represents a summary of all of management’s plans and goals for the future, and outlines the way in which these plans are to be accomplished The master budget is composed of a number of smaller, specific budgets encompassing sales, production, raw materials, direct labor, manufacturing overhead, selling and administrative expenses, and inventories The master budget generally also contains a budgeted income statement, budgeted balance sheet, and cash budget 18 The flow of budgeting information moves in two directions—upward and downward The initial flow should be from the bottom of the organization upward Each person having responsibility over revenues or costs should prepare the budget data against which his or her subsequent performance will be measured As the budget data are communicated upward, higher-level managers should review the budgets for consistency with the overall goals of the organization and the plans of other units in the organization Any issues should be resolved in discussions between the individuals who prepared the budgets and their managers All levels of an organization should participate in the budgeting process —not just top management or the accounting department Generally, the lower levels will be more familiar with detailed, day-to-day operating data, and for this reason will have primary responsibility for developing the specifics in the budget Top levels of management should have a better perspective concerning the company’s strategy 19 Budgeting can assist a company forecast its workforce staffing needs through direct labor and other budgets By careful planning through the budget process, a company can often smooth out its activities and avoid erratic hiring and laying off employees II Matching Type C H E F I 10 A B J D G III Exercises Exercises (Schedule of Expected Cash Collections) 15-4 Functional and Activity-Based Budgeting Chapter 15 Requirement July May sales: P430,000 × 10% June sales: P540,000 × 70%, 10% July sales: P600,000 × 20%, 70%, 10% August sales: P900,000 × 20%, 70% September sales: P500,000 × 20% Total cash collections August September P 43,000 Total P 43,000 378,000 P54,000 432,000 120,000 420,000 P 60,000 600,000 180,000 810,000 P541,000 630,000 100,000 100,000 P654,000 P790,000 P1,985,000 Notice that even though sales peak in August, cash collections peak in September This occurs because the bulk of the company’s customers pay in the month following sale The lag in collections that this creates is even more pronounced in some companies Indeed, it is not unusual for a company to have the least cash available in the months when sales are greatest Requirement Accounts receivable at September 30: P 90,000 From August sales: P900,000 × 10% From September sales: P500,000 × (70% + 10%) 400,000 Total accounts receivable P490,000 Exercise (Production Budget) July 15-5 August Septembe Quarter Chapter 15 Functional and Activity-Based Budgeting Budgeted sales in units Add desired ending inventory* Total needs Less beginning inventory Required production 30,000 45,000 r 60,000 135,000 4,500 34,500 3,000 31,500 6,000 51,000 4,500 46,500 5,000 65,000 6,000 59,000 5,000 140,000 3,000 137,000 * 10% of the following month’s sales Exercise (Materials Purchase Budget) First 60,000 × 3 180,000 Required production of calculators Number of chips per calculator Total production needs—chips Production needs—chips Add desired ending inventory— chips Total needs—chips Less beginning inventory—chips Required purchases—chips Cost of purchases at P2 per chip Quarter – Year Second Third 90,000 150,000 × 3 × 3 270,000 450,000 First 180,000 Second 270,000 Year Third 450,000 54,000 234,000 36,000 198,000 P396,000 90,000 360,000 54,000 306,000 P612,000 60,000 510,000 90,000 420,000 P840,000 Fourth 100,000 × 3 300,000 Fourth 300,000 Year First 80,000 × 3 240,000 Year 1,200,000 48,000 48,000 348,000 1,248,000 60,000 36,000 288,000 1,212,000 P576,000 P2,424,000 Exercise (Direct Labor Budget) Requirement Assuming that the direct labor workforce is adjusted each quarter, the direct labor budget would be: Units to be produced Direct labor time per unit (hours) Total direct labor hours needed Direct labor cost per hour Total direct labor cost 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter 5,000 4,400 4,500 4,900 × 0.40 × 0.40 × 0.40 × 0.40 × Year 18,800 0.40 2,000 1,760 1,800 1,960 7,520 × P11.00 × P11.00 × P11.00 × P11.00 × P11.00 P 22,000 P 19,360 P 19,800 P 21,560 P 82,720 Requirement Assuming that the direct labor workforce is not adjusted each quarter and 15-6 Functional and Activity-Based Budgeting Chapter 15 that overtime wages are paid, the direct labor budget would be: Units to be produced Direct labor time per unit (hours) Total direct labor hours needed Regular hours paid Overtime hours paid Wages for regular hours (@ P11.00 per hour) Overtime wages (@ P11.00 per hour × 1.5) Total direct labor cost 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter 5,000 4,400 4,500 4,900 Year 18,800 × 0.40 × 0.40 × 0.40 × 0.40 × 0.40 2,000 1,800 200 1,760 1,800 - 1,800 1,800 - 1,960 1,800 160 7,520 7,200 360 P19,800 P19,800 P19,800 P19,800 P79,200 3,300 P23,100 P19,800 P19,800 2,640 P22,440 5,940 P85,140 Exercise (Manufacturing Overhead Budget) Requirement Kiko Corporation Manufacturing Overhead Budget Budgeted direct labor-hours Variable overhead rate Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Less depreciation Cash disbursements for manufacturing overhead 1st Quarter 5,000 x P1.75 P 8,750 35,000 43,750 15,000 2nd Quarter 4,800 x P1.75 P 8,400 35,000 43,400 15,000 3rd Quarter 5,200 x P1.75 P 9,100 35,000 44,100 15,000 4th Quarter 5,400 x P1.75 P 9,450 35,000 44,450 15,000 Year 20,400 x P1.75 P 35,700 140,000 175,700 60,000 P28,750 P28,400 P29,100 P29,450 P115,700 Requirement Total budgeted manufacturing overhead for the year (a) Total budgeted direct labor-hours for the year (b) Predetermined overhead rate for the year (a) ÷ (b) P175,700 20,400 P 8.61 Exercise (Selling and Administrative Budget) Helene Company Selling and Administrative Expense Budget 1st 2nd 15-7 3rd 4th Year Chapter 15 Functional and Activity-Based Budgeting Budgeted unit sales Variable selling and administrative expense per unit Variable expense Fixed selling and administrative expenses: Advertising Executive salaries Insurance Property taxes Depreciation Total fixed selling and administrative expenses Total selling and administrative expenses Less depreciation Cash disbursements for selling and administrative expenses Quarter 12,000 Quarter 14,000 Quarter 11,000 Quarter 10,000 47,000 x P2.75 P33,000 x P2.75 P 38,500 x P2.75 P 30,250 x P2.75 P 27,500 x P2.75 P129,250 12,000 40,000 12,000 40,000 6,000 12,000 40,000 12,000 40,000 6,000 16,000 16,000 6,000 16,000 16,000 48,000 160,000 12,000 6,000 64,000 68,000 74,000 74,000 74,000 290,000 101,000 16,000 112,500 16,000 104,250 16,000 101,500 16,000 419,250 64,000 P 85,000 P 96,500 P 88,250 P 85,500 P355,250 Exercise (Cash Budget Analysis) Cash balance, beginning Add collections from customers Total cash available Less disbursements: Purchase of inventory Operating expenses Equipment purchases Dividends Total disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments (including interest) Total financing Cash balance, ending Quarter (000 omitted) P 9 * P P P 76 85 * 90 95 125 * 130 40 * 36 10 * * 88 58 42 110 * 36 * 54 * * * * * * 100 100 105 32 * 48 10 * 92 Year P 391 * 400 166 180 * 36 * 390 (3)* (15) 30 * 13 10 20 * — — 28 (25) (25) P (7)* (7) P (32) (4) P P5 *Given 15-8 20 P Functional and Activity-Based Budgeting Chapter 15 IV Problems Problem (Schedule of Expected Cash Collections and Disbursements) Requirement P 7,400 September cash sales September collections on account: July sales: P20,000 × 18% 3,600 August sales: P30,000 × 70% 21,000 September sales: P40,000 × 10% 4,000 Total cash collections P36,000 Requirement Payments to suppliers: August purchases (accounts payable) P16,000 September purchases: P25,000 × 20% 5,000 Total cash payments P21,000 Requirement COOKIE PRODUCTS Cash Budget For the Month of September P 9,000 Cash balance, September Add cash receipts: Collections from customers 36,000 Total cash available before current financing 45,000 Less disbursements: Payments to suppliers for inventory P21,000 Selling and administrative expenses 9,000 * Equipment purchases 18,000 Dividends paid 3,000 Total disbursements 51,000 Excess (deficiency) of cash available over disbursements (6,000) Financing: Borrowings 11,000 Repayments Interest 15-9 Chapter 15 Functional and Activity-Based Budgeting Total financing 11,000 P   5,000 Cash balance, September 30   * P13,000 – P4,000 = P9,000 Problem (Production and Purchases Budget) Requirement Production budget: Budgeted sales (units) Add desired ending inventory Total needs Less beginning inventory Required production July 40,000 20,000 60,000 17,000 43,000 August 50,000 26,000 76,000 20,000 56,000 Septembe r 70,000 15,500 85,500 26,000 59,500 October 35,000 11,000 46,000 15,500 30,500 Requirement During July and August the company is building inventories in anticipation of peak sales in September Therefore, production exceeds sales during these months In September and October inventories are being reduced in anticipation of a decrease in sales during the last months of the year Therefore, production is less than sales during these months to cut back on inventory levels Requirement Raw materials purchases budget: Required production (units) Material P214 needed per unit Production needs (lbs.) Add desired ending inventory (lbs.) Total Material P214 needs Less beginning inventory (lbs.) Material P214 purchases (lbs.) July 43,000 × lbs 129,000 August 56,000 × lbs 168,000 84,000 213,000 64,500 148,500 89,250 257,250 84,000 173,250 15-10 Septembe r 59,500 × lbs 178,500 45,750 * 224,250 89,250 135,000 Third Quarter 158,500 × lbs 475,500 45,750 521,250 64,500 456,750 Functional and Activity-Based Budgeting Chapter 15 * 30,500 units (October production) × lbs per unit= 91,500 lbs.; 91,500 lbs × 0.5 = 45,750 lbs As shown in requirement (1), production is greatest in September However, as shown in the raw material purchases budget, the purchases of materials is greatest a month earlier because materials must be on hand to support the heavy production scheduled for September Problem (Cash Budget; Income Statement; Balance Sheet) Requirement Schedule of cash receipts: P 60,000 Cash sales—June Collections on accounts receivable: May 31 balance 72,000 June (50% × 190,000) 95,000 Total cash receipts P227,000 Schedule of cash payments for purchases: P 90,000 May 31 accounts payable balance June purchases (40% × 200,000) 80,000 Total cash payments P170,000 PICTURE THIS, INC Cash Budget For the Month of June Cash balance, beginning P 8,000 Add receipts from customers (above) 227,000 Total cash available 235,000 Less disbursements: Purchase of inventory (above) 170,000 Operating expenses 51,000 Purchases of equipment 9,000 Total cash disbursements 230,000 Excess of receipts over disbursements 5,000 Financing: Borrowings—note 18,000 Repayments—note (15,000) 15-11 Chapter 15 Functional and Activity-Based Budgeting Interest (500) Total financing 2,500 Cash balance, ending P 7,500 Requirement PICTURE THIS, INC Budgeted Income Statement For the Month of June Sales P250,000 Cost of goods sold:  P 30,000 Beginning inventory Add purchases 200,000 Goods available for sale 230,000 Ending inventory 40,000 Cost of goods sold 190,000 Gross margin 60,000 Operating expenses (P51,000 + P2,000) 53,000 Net operating income 7,000 Interest expense 500 Net income P 6,500 Requirement PICTURE THIS, INC Budgeted Balance Sheet June 30 Assets Cash P 7,500 Accounts receivable (50% × 190,000) 95,000 Inventory 40,000 Buildings and equipment, net of depreciation (P500,000 + P9,000 – P2,000) 507,000 Total assets P649,500 Liabilities and Equity Accounts payable (60% × 200,000) P120,000 Note payable 18,000 Share capital 420,000 Retained earnings (P85,000 + P6,500) 91,500 Total liabilities and equity P649,500 15-12 Functional and Activity-Based Budgeting Chapter 15 Problem (Sales, Production and Materials Purchases Budget) Requirement Nikko Manufacturing Company Sales Budget For the year ending December 31, 2005 Units 16,000 20,000 22,000 22,000 80,000 First quarter Second quarter Third quarter Fourth quarter Total Amount P 480,000 600,000 660,000 660,000 P2,400,000 Requirement Nikko Manufacturing Company Statement of Production Required For 2005 Units to be sold Add: Desired ending inventory (20%) Total units required Less: Beginning inventory Units to be produced 1st 16,000 4,000 20,000 3,000 17,000 Quarter 2nd 3rd 20,000 22,000 4,400 4,400 24,400 26,400 4,000 4,400 20,400 22,000 4th 22,000 5,000 27,000 4,400 22,600 Total 80,000 5,000 85,000 3,000 82,000 Requirement Nikko Manufacturing Company Statement of Raw Materials Purchase Requirements For 2005 Units required for production Add: Desired ending inventory Total units Less: Beginning inventory 1st 51,000 12,240 63,240 12,500 15-13 Quarter 2nd 3rd 61,200 66,000 13,200 13,560 74,400 79,560 12,240 13,200 4th Total 67,800 246,000 15,000 15,000 82,800 261,000 13,560 12,500 Chapter 15 Functional and Activity-Based Budgeting Raw Materials to be Purchased 50,740 62,160 66,360 69,240 248,500 Problem (Schedule of Expected Cash Collections; Cash Budget) Requirement Schedule of expected cash collections: From accounts receivable From April sales: 20% × 200,000 75% × 200,000 4% × 200,000 From May sales: 20% × 300,000 75% × 300,000 From June sales: 20% × 250,000 Total cash collections April P141,000 Month May P 7,200 June 40,000 Quarter P148,200 P 8,000 40,000 150,000 8,000 225,000 60,000 225,000 50,000 P181,000 P217,200 P283,000 50,000 P681,200 Month May June P 27,000 P 20,200 Quarter P 26,000 150,000 60,000 Requirement Cash budget: Cash balance, beginning Add receipts: Collections from customers Total available Less disbursements: Merchandise purchases Payroll Lease payments Advertising Equipment purchases Total disbursements April P 26,000 181,000 207,000 217,200 244,200 283,000 303,200 681,200 707,200 108,000 9,000 15,000 70,000 8,000 210,000 120,000 9,000 15,000 80,000 — 224,000 180,000 8,000 15,000 60,000 — 263,000 408,000 26,000 45,000 210,000 8,000 697,000 15-14 Functional and Activity-Based Budgeting Chapter 15 Excess (deficiency) of receipts over disbursements Financing: Borrowings Repayments Interest Total financing Cash balance, ending (3,000) 30,000 — — 30,000 P 27,000 20,200 40,200 10,200 — — — (30,000) — (1,200) — (31,200) P 20,200 P 9,000 30,000 (30,000) (1,200) (1,200) P 9,000 Requirement If the company needs a minimum cash balance of P20,000 to start each month, the loan cannot be repaid in full by June 30 If the loan is repaid in full, the cash balance will drop to only P9,000 on June 30, as shown above Some portion of the loan balance will have to be carried over to July, at which time the cash inflow should be sufficient to complete repayment Problem (Flexible Budget) Summer Machine Company Flexible Overhead Budget Department Machine Hours Variable Overhead Fixed Overhead Total 100% 200,000 P1,300,000 300,000 P1,600,000 90% 180,000 P1,170,000 300,000 P1,470,000 Capacity 80% 160,000 P1,040,000 300,000 P1,340,000 70% 140,000 P 910,000 300,000 P1,210,000 60% 120,000 P 780,000 300,000 P1,080,000 70% 140,000 280,000 P 980,000 500,000 P1,480,000 60% 120,000 240,000 P 840,000 500,000 P1,340,000 Manufacturing Overhead rate per machine hour P8.00 Summer Machine Company Flexible Overhead Budget Department Direct Labor Hours Machine Hours Variable Overhead Fixed Overhead Total 100% 200,000 400,000 P1,400,000 500,000 P1,900,000 90% 180,000 360,000 P1,260,000 500,000 P1,760,000 15-15 Capacity 80% 160,000 320,000 P1,120,000 500,000 P1,620,000 Chapter 15 Functional and Activity-Based Budgeting Manufacturing Overhead rate per machine hour P4.75 Problem (Cash Budget with Supporting Schedules) Collections on sales: July August Sept Quarter Cash sales P 8,000 P14,000 P10,000 P 32,000 Credit sales: May: P30,000 × 80% × 20% 4,800 4,800 June: P36,000 × 80% × 70%, 20% 20,160 5,760 25,920 July: P40,000 × 80% × 10%, 70%, 20% 3,200 22,400 6,400 32,000 Aug.: P70,000 × 80% × 10%, 70% 5,600 39,200 44,800 Sept.: P50,000 × 80% × 10% 4,000 4,000 Total cash collections P36,160 P47,760 P59,600 P143,520 a Merchandise purchases budget: July August Sept Oct Budgeted cost of goods sold P24,000 P42,000 P30,000 P27,000 Add desired ending inventory* 31,500 22,500 20,250 Total needs 55,500 64,500 50,250 Less beginning inventory 18,000 31,500 22,500 Required inventory purchases P37,500 P33,000 P27,750 *75% of the next month’s budgeted cost of goods sold 15-16 Functional and Activity-Based Budgeting Chapter 15 b Schedule of expected cash disbursements for merchandise purchases: July August Sept Quarter Accounts payable, June 30 P11,700 P11,700 July purchases 18,750 P18,750 37,500 August purchases 16,500 P16,500 33,000 September purchases 13,875 13,875 Total cash disbursements P30,450 P35,250 P30,375 P96,075 Ju Products, Inc Cash Budget For the Quarter Ended September 30 July Cash balance, beginning P 8,000 Add collections from sales 36,160 Total cash available 44,160 Less disbursements: For inventory purchases 30,450 For selling expenses 7,200 For administrative expenses 3,600 For land 4,500 For dividends Total disbursements 45,750 Excess (deficiency) of cash available over disbursements (1,590) Financing: Borrowings 10,000 Repayment Interest Total financing 10,000 Cash balance, ending P 8,410 * P10,000 × 1% × = August Sept P 8,410 P 8,020 47,760 59,600 56,170 67,620 35,250 11,700 5,200 0 52,150 30,375 8,500 4,100 1,000 43,975 96,075 27,400 12,900 4,500 1,000 141,875 4,020 23,645 9,645 4,000 (14,000) (380) 4,000 (14,380) P 8,020 P 9,265 P300 15-17 Quarter P 8,000 143,520 151,520 14,000 (14,000) (380) (380) P 9,265 Chapter 15 Functional and Activity-Based Budgeting P4,000 × 1% × = 80 P380 V Multiple Choice Questions 10 B B C E C C D C A D 11 12 13 14 15 16 17 18 19 20 C B C B D C A B E B 21 22 23 24 25 26 27 28 29 30 C C D C C C D A C D Supporting computations: Questions 16 to 20: January Cost of sales P1,400,000 Add: Desired Minimum Inventory 492,000 Total 1,892,000 Less: Beginning Inventory (1,400,000 x 0.3) 420,000 (17) Gross Purchases (16) 1,472,000 Less: Cash discount 14,720 Net cost of purchases P1,457,280 Payments of Purchases 60% - month of purchase 40% - following month Total (19) 15-18 P874,368 (18) February P1,640,000 456,000 2,096,000 492,000 1,604,000 16,040 P1,587,960 P 952,776 582,912 P1,535,688 Functional and Activity-Based Budgeting Chapter 15 Gross Current month’s sales (with discount) 35% Current month’s sales (without discount) 15% Previous month’s sales (with discount) 4.5% Previous month’s sales (without discount) 40.5% February Cash Discount Net P595,000 P11,900 P583,100 255,000 255,000 67,500 1,350 66,150 607,500 P1,525,000 607,500 P13,250 (20)Total Collections in February Add: Cash sales Total P1,511,750 P1,511,750 350,000 P1,861,750 (21)Estimated cash receipts Collections from customers Proceeds from issuance of common stock Proceeds from short-term borrowing Total Less: Estimated cash disbursements For cost and expenses For income taxes Purchase of fixed asset Payment on short-term borrowings Total Cash balance, Dec 31 (22)Net income P120,000 Add: Depreciation 65,000 Working capital provided from operations Add: Increase in income taxes payable P 80,000 Increase in provision for doubtful accounts receivable 45,000 Total Less: Increase in accounts receivable P 35,000 Decrease in accounts payable 25,000 Increase in cash 15-19 P1,350,000 500,000 100,000 P1,950,000 P1,200,000 90,000 400,000 50,000 1,740,000 P 210,000 P185,000 125,000 P310,000 60,000 P250,000 Chapter 15 Functional and Activity-Based Budgeting (23)Cash Receipts for February 2005 From February sales (60% x 110,000) From January sales Total P 66,000 38,000 P104,000 (24)Pro-forma Income Statement, February 2005 Sales Cost of sales (75%) Gross profit P110,000 82,500 P 27,500 Less: Operating expenses Depreciation Bad debts Net operating income 16,500 5,000 2,200 23,700 P 3,800 (25)Accounts Payable on February 28, 2005 will be the unpaid purchases in February - (75% x P120,000) = P90,000 Questions 26 to 29: Net sales P2,000,000 Less: Cost of sales Finished goods inventory, Jan P 350,000 Add: Cost of goods manufactured (Sch I) 1,350,000 * Total available for sale P1,700,000 Less: Finished goods inventory, Dec 31 400,000 1,300,000 (26) Gross Profit P 700,000 Less: Operating and financial expenses Selling P 300,000 Administrative 180,000 Finance 20,000 500,000 Net income before taxes P 200,000 * Determined by working back from net income to sales Schedule I Raw materials used Raw materials inventory, Jan Add: Purchases Total available Less: Raw materials inventory, Dec 31 15-20 P 250,000 491,000 (29) 741,000 300,000 Functional and Activity-Based Budgeting Chapter 15 Raw materials used Direct labor Manufacturing overhead Total Manufacturing Cost Add: Work-in-process inventory, Jan Total Less: Work-in-process inventory, Dec 31 Cost of goods manufactured P 441,000 588,000 441,000 (28) P1,470,000 (27) 200,000 P1,670,000 320,000 P1,350,000 (30)Variable factory overhead P150,000 48,000 P3.125 Fixed factory overhead P240,000 48,000 5.000 Total factory overhead P8.125 15-21 ... subsequent performance 15- 3 Chapter 15 Functional and Activity-Based Budgeting 17 A master budget represents a summary of all of management’s plans and goals for the future, and outlines the way... 20,400 P 8.61 Exercise (Selling and Administrative Budget) Helene Company Selling and Administrative Expense Budget 1st 2nd 15- 7 3rd 4th Year Chapter 15 Functional and Activity-Based Budgeting Budgeted... P6,500) 91,500 Total liabilities and equity P649,500 15- 12 Functional and Activity-Based Budgeting Chapter 15 Problem (Sales, Production and Materials Purchases Budget) Requirement