Discussion Answers:

1. Budgets are prepared for planning, controlling purposes and making decisions to

achieve the desired goal. They are prepared to enable comparison between actual and

expected outcomes. Budgets are used in planning in accordance with strategic plans of

an organization and encourages managers to develop an overall direction for the

organization, foresee problems, and develop future policies.. They are prepared to

achieve these objectives and to ensure that organization’s activities are in conformity

with strategic plans. Strategic plans are further categorized into short term and long

term objectives.

2. Control refers to the process of analyzing the activities that have taken place and

comparing those activities with the plans. Variances found during control activity are

investigated and accordingly corrective actions are taken, including making

modifications to the budgets. Budgeting refers to the process of designing,

implementing, and operating budgets. Budgeting, as a control tool, provides an action

plan to ensure that the organization's actual activities are least deviated from the

planned activities. Budgets are used to give an overview of the organization and its

operations.

3. Master Budget is the comprehensive financial plan for the organization as a whole.

Typically, the master budget is for a 1-year period, corresponding to the fiscal year of

the company. Operating budgets describe the income-generating activities of a firm:

sales, production, and finished goods inventories. The financial budget ensures that the

right types of funds are available whenever they are required. The aim of this budget is

to manage the outflows with the inflows.

4. Yes, all budgets depend on sales budgets because budgets can’t exceed the amount

of available money. When sales are poor, the budgets will be smaller.
5. It is important because Managers can provide clear, data-driven feedback through

Path light. You can see who is not on track to meet their goals, and course-correct

directly through the platform. The feedback mechanism helps to remedy the action or to

maintain the very same action.

6. Agree. Individuals who are not challenged tend to lose interest and maintain a lower

level of performance. A challenging, but achievable, budget tends to extract a higher

level of performance.

Exercises:

1.

Patrick Inc.
Sales Budget
For the Coming Quarter
January February March 1st Quarter
Total
Unit 41, 000 38, 000 50, 000 129, 000
Price x P35 x P35 x P35 x P35
Sales P1,435,000 P1,330,000 P1,750,000 P4,515,000

2.

Patrick Inc.
Production Budget
For the Coming Quarter
1st Quarter
January February March Total
Sales 41, 000 38, 000 50, 000 129, 000
Desired
ending
inventory 9, 500 12, 500 12, 750 34, 750
Total
needs 50, 500 50, 500 62, 720 163, 750
Less:
Beginning
inventory 6, 700 9, 500 12, 500 28, 700
Units to
be
produced 43, 800 41, 000 50, 220 135, 050

3.

Patrick Inc.
Direct Materials Purchases Budget
For the Coming Quarter
 December January February
Units 43, 800 41, 000 50, 250
required for
production
x Raw 15% 15% 15%
materials
ending
inventory
policy rate
Raw 6, 570 6, 150 7, 538
materials
ending
inventory
x No. of 5.5 5.5 5.5
gallons of
chemicals
Ending 36, 135 33, 825 41, 459
inventory of
chemicals
in gallons

*beginning inventory of chemicals for the month of January is 36, 135 units.

Patrick Inc.
Raw Materials Purchases
For the month of January and February
January February Total
Units required for 43, 800 41, 000 84, 800
production-beg.
x No. of gallons 5.5 5.5 5.5
of chemicals
Units required for 240, 900 225, 500 466, 400
production-end.
Add desired 33, 825 41, 459 75, 284
ending inventory
Less beginning 36, 135 33, 825 69, 960
inventory
Units of direct 238, 590 233, 134 471, 724
materials to
purchase-
materials
x Unit price 2 2 2
Total purchases P477, 180 P466, 268 P943, 448

4.

Patrick Inc.
Direct Labor Cost Budget
For the first quarter
January February March Total
No. of units to 43. 800 41, 000 50, 250 135, 050
be produced
Direct labor P 5.4 P 5.4 P 5.4 P 5.4
cost per unit
Budgeted P 236, 520 P 221, 400 P 271, 350 P 729, 270
direct labor
cost

5.

Patrick Inc.
Budgeted Manufacturing Overhead
For the 1st quarter
January February March Total
Variable P 9, 198 P 8, 610 P 10, 553 P 28, 361
overhead
indirect labor
Fixed 2, 750 2, 750 2, 750 8, 250
manufacturing
overhead
Total P 11, 948 P 11, 360 P 13, 303 P 36, 611
manufacturing
overhead

6.

Direct materials P14

Direct Labor 30.4

(1.9 x P16)

P 44.4
Total Variable Overhead P 2.28
(1.9 x P1.20)

Fixed Overhead 3.04 P5.32

(1.9 x P1.6)
Product cost P 49.72

Andrew Co.
Cost of Budgeted Ending Inventory
For xx
Ending Inventory 675
x Product Cost P 49. 72
Budgeted Ending Inventory Cost P 33, 561

7.
Andrew Company
 Cost of Goods Sold Budget Schedule
For the Year 20xx
Beg. Work in Process _
Direct Materials (20, 000x14) P280, 000
Direct Labor (20, 000x1.9x16) 608, 000
Manufacturing Overhead
Variable Overhead (20, 000x1.9x1.20) P45, 600
Fixed Overhead (20, 000x1.9x1.6) 60, 800 P106, 400
Total Manufacturing Cost P 994, 400
Less: Work in Process-end. _
Cost of Goods Manufactured P 994, 400
Add: Beg. Inventory _
Total Goods Available for Sale P 994, 400
Less: Ending Finished Goods Inventory 33, 561
Cost of Goods Sold P 960, 839

8.
Fazel Company
Budgeted Selling and Administrative Cost
For 20xx
Variable Marketing Cost
Sales Commission (P19, 730, 000x3%) P591, 900
Fixed Selling and Administrative Cost
Salaries P960, 000
Utilities 365, 000
Office Space 230, 000
Advertising 1, 200, 000 P2, 755, 000
Total Selling and Administrative Cost P3, 346, 900

9.
Oliver Company
 Budgeted Income Statement
For the Year Ended 20xx
Sales (160, 000xP10.80) P1, 728, 000
Less: COGS (160, 000xP6.30) 1, 008, 000
Gross Profit P720, 000
Less: Selling and Administrative Expense
Variable Expense (160, 000x1.10) P176, 000
Fixed Expense 423, 000 599, 000
Net Operating Profit P121, 000
Less: Interest Expense _
Net Income before Tax P121, 000
Less: Tax (35%) 42, 350
Net Income P78, 650

10.

Kailua and Company

Schedule of Cash Collection on Account
For 20xx
May June July August September
Cash Sales - - - - -
Received
on account
for:
May P 16, 800 P 42, 000 P 21, 000
June 20, 160 50, 400 P 25, 200
July 15, 400 38, 500 P 19, 250
August 17, 360 43, 400
September 18, 200
Total Cash P 16, 800 P62, 160 P 86, 800 P 81, 060 P 80, 250
Receipts

11.

Wight Company
Accounts Payable Schedule
For 20xx
April May June
Paid on Account
for:
April P 74, 880 P299, 5270
May 82, 240 P 328, 960
June 83, 200
Total Cash P 74, 880 P 381, 760 P 412, 160
Disbursements
A. P74, 880 B. P412, 160
12.
A. Cash Sales (157, 000x85%) P133, 450
Add: Collections
1st month (23, 550x70%) 16, 485
Total Cash Receipts-October P149, 935
B. Payment for Purchase
1st month (P116, 000x25%)
=P 29, 000
C.
La Famiglia Pizza
Cash Budget
For the month of October
Cash Balance-October 1 P2, 147
Add:
Cash Sales P133, 450
Collections (23, 550x70%) 16, 485 149, 935
Total Cash Available P152, 082
Less: Estimated Disbursements
Purchases P29, 000
Salary 6, 000
Part time worker wages 6, 750
Utilities expense 5, 950
Rent expense 4, 100
Insurance 1, 200 53, 000
Cash Balance- October 31 P99, 082
13.
A.
Joven Company
Sales Budget
For 1st quarter
Unit sold 100, 000
x Unit price _P 15__
Estimated Sales Revenue P150, 000
B.
Joven Company
Production Budget
For 1st quarter
Unit sold 100, 000
Add: Desired Ending Inventory 12, 000
Total 112, 000
Less: Beginning Inventory 8, 000
Units to be Produced 104, 000

C.
Joven Company
Raw Materials Purchases
For 1st quarter
Units required to be produced
(104, 000x4) 416, 000
Add: Desired Ending Inventory 6, 000_
Total units required 422, 000
Less: Beg. Inventory 4, 000_
Units to be produced 418, 000
x Unit price P2.5___
Total Purchases P1, 045, 000

D.
Joven Company
Direct Labor Cost Budget
For 1st quarter
No. of units to be produced 104, 000
x Direct labor cost per unit
(0.5xP9) P4.5
Total Budgeted Direct Labor Cost P468, 000
14.
Kylles Inc.
Cash Budget
For the budgeted month ended March 31, 20xx
Cash balance- March 1 P1, 230
Add: Estimated Cash Receipts
Cash sales P45, 000
Sale of asset 3, 500 48, 500
Total Cash Available P489, 730
Less: Estimated Cash Disbursement
Payments for materials and supplies P10, 000
Direct Labor 12, 500
Other expenditures 14, 900 37, 400
Cash balance- March 31 P12, 330