580 Chapter 15 contrast to formance Prepared earlier under the static budget spore ths peftomance repo prepres under the Oeuble badge spree distinguishes clearly between production control and cost control. ‘The production data at the top of the report indicate whether the production goal was met. The cost data at the bottom of the report tell how weil costs were controlled for the 18,800 shirts that were actually produced. It will be observed that all the cost variances in Figare 1$.4 are unfavorable, as contrasted to the favorable cust variances on the perfoanance report prepared earlier under the static budget approach. The reason for the change in variances is that by means of the flexible budget approach we are able to compare budgeted and actual costs at the same activity level (18,800 shirts produced). The result shows up in more usable variances.Functional and Activity-Baved Bi REVIEW QUESTIONS AND PROBL fudgeting 581 MS Questions wag a practical tnatter, planning and control mean exactly the sane . “Vo you agree? Explain. thing ssudaets are heif-used if they serve only as a planning device? Explain 3, What are the two major features of a budgetary program? Which feature ig more important? Why? Explain briefly how a budget can be used in costing products, Why must sales and production be coordinated? _ How can a labor hour budget be translated into a labor cost budget? . How are long-range plans for the acquisition of plant assets included in current budgets? . What is the budget period? Is a budget prepared for a month, for a year, or for some other interval of time? Explain. 9. What is a rolling, continuous, or progressive budget? 10, Explain how a comparison of actual results with a budget can be applied in the control of operations. 11. Can a comparison of actual results with a budget lead to better future budgets? Explain. 12, What is a self-imposed budget? What are the major advantages of self imposed budgets? What caution must be exercised in their use? '3. “The principal purpose of the cash budget is to see how. much cash the company will have in the bank at the'end of the year.” Do you agree? Explain. How does zero-based budgeting differ from traditional budgeting? - What is a budget? What is budgetary control? Discuss some of the major benefits to be gained from budgeting. - What.is a master budget? Briefly describe its contents. a the Describe the flow of budget data in an organization. Who fre US Participants in the budgeting process, and how do they participate" oe budgeting assist a company in planning its workforce stan els?the terms on the left column. 1. Sales forecast 2. Management by exception 3. Responsibility accounting, 4. Balance sheet 5. Performance budget 6. Objective 7. Capital expenditures budget 8. Profit plan 9. Master budget 10. Goals A. A quantitative mea company tt * B. A budget reflecting decisions of the comme G. A set of statements providing broad direction for the firm, H, The practice of focusing attention on those activities Planned 1. A budget prepared after the fact, showing what costs should have been at the actua! level of J. An operating budget for a specific future period of time.Functional and Activity-Based ting et Peeing 503 gp. Boers sper | (Shed of Expected Cath Collections) sales for Mideast Products, Inc., occur in August. The : vere forthe third quarter showing these pek sales is given Company's salen duly August pdgeted sales. 600,000 900,000 PEDeeon ce From past experience, the company has leamed that 20% of a ° Fr a the month of sale, tht anther 70% icles be mh follov:ing sale, and that the remaining 10% is collected in the second month mg sale. Bad debts aré negligible and can be ignored. May sales totaled P430,000 and June sales totaled P540,000. Required: 1. Prepare a schedule of expected cash collections from sales, by month and in total, for the third quarter. % ‘Assume that the company will prepare a budgeted balance sheet as of ‘September 30. ‘Compute the accounts receivable as of thet date, Exercise 2 (Production Budget) Rock Telecom has budgeted the sales of its innovative mobilephone ovr the next four months as follows: Past finished goods must equal 10% of the nest month584 Chapter 15 Exercise 3 (Materials Parchase Budget) ini werfull electroni Mini Products, Inc., has a very po} ic Each calculator requires three small “chips’ "that cost P200 each atte = purchased from an overseas supplier. Mini Products has production budget for the calculator by quarters for Year 2 and for the fig quarter of Year 3, as shown below. Year 2 akg First Second Third Fourth Firs Budgeted production - Sp alclatrs. 60,000 90,000 150,000 100,000 $0,099 The chip used in production of the calculator is sometimes hard to get, so itis necessary to carry large inventories as a precaution against stockouts, For this reason, the inventory of chips at the end of the quarter must be equal to 20% of the following quarter's production needs. Some 36,000 chips will be on hand to start the first quarter of Year 2. Required: Prepare a materials purchases budget for chips, by quarter and in total, for Year 2. At the bottom of your budget, show the peso amount of purchases for each quarter and for the year in total. Exercise 4 (Direct Labor Budget) The Production Department of the Laguna Plant of JC Corporation has submitted the following forecast of units to be produced at the plant for each quarter of the upcoming fiscal year. The plant produces high-end outdoor barbeque grills. s I" quarter 2 quarter 3 quarter 4"" quarter Units to be produced... 5,000 4,400 4,500 4,900 Each unit requires 0.40 direct labor-hours and direct labor-hour workers paid " P11 per hour. Required: 1. Construct the company’s direct labor budget for the upcoming fiscal rh pcoming year, assuming that the direct labor work force is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.oy Functional and Activity. Based B, geting sas year, assuming that the direct labor work ae Upcoming fi quarter. Insta, assume that he come ee," Mia ack ‘consists of permanent employees who are fer work fre least 1,800 hours of work each quarter. If the pum rte Pad for at Jabor-hours is less than this number, the workers are paid for 1.800 ot yoray, Any hours worked in excess of 1,800 haus inn game ws paid at the rate of 1.5 times the normal hourly rate for direct oe“ Exercise 5 (Manufsctaring Overbead Budget) The direct labor budget of Kiko Corporation for the upcomi ae eer» kaviag cals coopahing badge dead ene ee I" quarter 2 quarter 3" quarier # quarter 5,000 4,800 5,200 3400 The company's variable manufacturing overhead rate is PI.75 per direct Inborchour and the company’s fixed manufacturing overhead is P35,000 per ‘manufacturing quarter. ‘The only noncash item included in the fixed Overhead is depreciation, which is P15,000 per quarter. Required: 1 Construct the company’s manufacturing overhead budget for the ‘upcoming fiscal year. : zs CReopute the company's manufacturing overhead rato (elning both co ne oot Pmanufacaring overhead) forthe upoaming Seal Round off to the nearest whole centavos. Exercise 6 (Seltieg aad Administrative Budget) : forthe uporsing Ss! Yor A P* quarter 2 quarter a "i00 Budgeted unit sales... 12,000 14,000 7 cae « cepeative expanses Per UE The company’s variable seling and administrate ude sven Fons ven and. adnate SINS 00 GO expenses of P12,000 per quarter, executive Sit, ye compa” and depreciation of P16,000 per quartet. In The budgeted unit sales of Helene Company provided below:586 Chapter 15 insurance payments of P6,000 in the 2” ere tr Quarter. Finally, property taxes of P6,000 will te falda in the a ae Required: <4 e Propare the company's selling and administrative esPeNSE budget gy upcoming fiscal year. the Erercise 7 (Cash Budget Analysis) * cash budget, by quarters, is given below for a retail Company (ogg P5000 1 get omitted). The company requires a minimum cash balance of each quarter. Year ‘sh balance, beginning. a 7.4 collections from customers. 2 ‘otal cash available... 3 86 disbursements: Purchase of inventory... ? Operating expenses tn Equipment purchases. % Dividends... ‘ ‘Total disbursements... t Excess (deficiency) oem available 20 - 1 =- 2 m Sek tad vn cain ead Rl b2, pe Be * Inierest will total P4,000 for the year, Revue Fill io the missing amounts in the table above,rv ee y, problems " 1 (ebedule of Expected Cash Collections and Disbursements) —_ Fictional and Activity-Rased Budgeting 587 a CE Sugeting S87 je Products, a distributor of organic beverages, needs a cash Ch ieee The following information is avaiable sh 4. Thecash balance at the beginning of September is P9,000. ‘Actual sales for July and August and expected for September as are follows: uly August September P 6,500 P 5,250 P 7,400 20.000 30,000 49,000 P26,500 P35,250 PA7.400 Sales on account are collected over a three-month period isi the following ratio: 10% collected in the month of sale, 70% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible. ©. Purchases of inventory will total P25,000 for September. Twenty Percent Of a month’s inventory purchases are paid for during the month of purchase, The accounts payable remaining from August’s inventory purchases total P16,000, all of which will be paid in September. Selling and administrative expenses are budgeted at P13,000 for September. Of this amount, P4,000 is for depreciation. Equipment costing P18,000 will be purchased for cash during September, and dividends totaling P3,000 will be paid during the month. ‘The company must mainiain a minimum cash balance of P5,000. An open line of credit is available from the company’s bank to bolster the cash position as needed. Required: 3, Pepare a schedule of expected cash collections for September. * Prepare a schedule of expected cash disbursements during September for 3, vetlory purchases. ee * sePare a cash budget for September. Indicate in the financing section “ry borrowing that will be needed during September. Cash sales... >588 Chapter 15 Problem 2 (Production and Purchases Budgets) Tiny Toys manufactures and distributes a number of products to rez ‘One of these products, Toyclay, requires three pounds of material P214 in the manufacture of each unit. The company is now planning raw materials needs for the third quarter ~ July, August, and September. Peak sales of Toyeley oveur in the third quarter of each year. ‘To keep production and shipmene, moving smoothly, the company has the following inventory requirements 4. The finished goods inventory on hand at the end of each month must be equal to 5,000 units plus 30% of the next month’s sales. The finished oods inventory on June 30 is budgeted to be 17,000 units. 5. The raw materials inventory on hand at the end of each month must be equal to one-half of the following month’s production needs for raw materials. The raw materials inventory on June 30 for material P214 is budgeted to be 64,500 pounds. ©. The company maintains no work in process inventories. A sales budget for Toyelay for the last six months of the year follows: Budgeted Sales in Units 10,000 Required: 1. Propare a production budget for Toyclay for the months July, A September, and October, ES anes 2 Examine the produetion budget that you prepared. Why will the corre, Produce more tbls than ic sells in July and August and less ‘units than it sells in September and October? 3: plcpare 4 budget showing the quantity of material P214 to be purchased for July, August and September and for the quarter in totalFunctional and Activity-Based Budgeting 59 ple 3 (Cash Budgets Income Statement; Balance Sheet) pro sheet of Picture This, Inc., a distributor of . bala wa : Photographic plies as of May 31 is given below: PICTURE THIS, INC. Balance Sheet May 31 Assets Cash. P 8,000 Accounts rece’ 72,000 laventory.. 30,000 Buildings and equipment, net of depreciation. 500,000 Total assets... P610,000 Liabilities and Equity ‘Accounts payable, suppliers P 90,000 Note payable. 15,000 Share capital, no par 420,000 Retained earnings 85,000 Total liabilities and equity. 610,000 Picture This, Ine., has not budgeted previously, and for this reason it is limiting its master budget planning horizon to just one month ahead - tumely, June. The company has assembled the following budgeted data relating to June: * Sales are budgeted at P250,000. Of these sales, P60,000 willbe for cash; the remainder will be credit sales. One-half of a month's eredit sales are ‘eieted in the month the sales are made, and the reminder i collected i the month following. All of the May 31 accounts receivable will collected in June, b Purchases of i wa thee! Th of inventory are expected to total P200,000 during Purch chases will all be on account. FAY Pe eal 'S€8 are paid for in the month of purchase; the remai J a lowing month. All of the May 31 accounts payable to suppliers be paid during June.