Bud Getting
Bud Getting
Budgeting
Nitwell Industrial Gas Company supplies acetylene and other compressed gases to
industry: Data regarding the store’s operation follow:
Sales are budgeted at 390,000 for November, 370,000 for December, and
380,000 for January.
Collections are expected to 90% in the month of sale, 5% in the month following
the sale, and 5% uncollectible
The cost of goods sold is 60% of sales
The company purchases 70% of its merchandise in the month prior to the month
of sale 30% in the month of sale. Payment for merchandise is made in the month
following the purchase.
Other monthly expenses to be paid in cash are 21,800
Monthly depreciation is 18,000
Ignore taxes
November December
Cost of Goods Sold (60% of sales) 234,000 222,000
Merchandise Purchase Budget
November purchases
(234,000 x 30%) 70,200
December Purchases
(222,000 x 70%) 155,400
(222,000 x 30%) 66,600
January Purchases
(228,000 x 70%) 159,600
Total Purchases 225,600 226,200
November December
Cash Receipts 422,000 352,500
Less: Merchandise Disbursement 232,000 225,600
Other expenses 21,800 21,800
Total Disbursements 253,800 247,400
Excess (Deficiency) of cash
over disbursement 168,200 105,100
d. Prepare Budgeted Income Statements for November and December.
November December
Sales 390,000 370,000
Less: Bad debt expenses 19,500 18,500
Net Sales 370,500 351,500
Less: Cost of Goods Sold 234,000 222,000
Gross Margin 136,500 129,500
Less: Other Expenses 21,800 21,800
Depreciation exp 18,000 18,000
Net Income 96,700 89,700
Mr. Ador Estoria, the operations manager of Achos Merchandising Corp. is worried
about the result of its operation this year. Although the accounting dept. has not
submitted the financial statements yet, the following data where already available
pertaining to year 2020.
Total number of units sold at P50 per unit price 120,000 units
Because of other pressing problems, he hired you to give him information and
computation that will help him plan for the next year operation. He specifically wants the
following (with proofs, if possible):
c. If the profit this year will be doubled next year, how much sales should be realized?
Target Profit = Fixed Cost + desired Profit/CM ratio
= 1,800,000 + (600,000 x 2)/40%
= 1,800,000 + 1,200,000/40%
= 7,500,000
Proof:
Sales 7,500,000
Less: Variable cost (7.5M x 60%) 4,500,000
Contribution margin (7.5M x 40%) 3,000,000
Less: Fixed costs (1,800,000)
Operating Income 1,200,000
d. If the number of units sold next year, exceeds the break-even point by 50,000 units,
what is result of the operation?
Solution: 50,000 x 20 =1,000,000
f. If the total peso sales generated next year is short by P1million in order to break-even,
what is the result of the operation?
Sales 3,500,000
Less: Variable costs (3.5M x 60%) 2,100,000
Contribution margin 1,400,000
Less: Fixed cost (1,800,000)
Operating income (400,000)
g. If the selling price per unit next year is reduced by 10% and an increase in variable
cost per unit by 5% due to the increase in the price of the supplier but this will result in
increase in quantity sold next year by 50%. What would be the result of the operation?
(use the contribution margin format)
Sample problem: For the current period, BackMe Corp. 80,000 units of Backbacks were
sold. Selling price per unit is P20, variable cost per unit is P12 per unit and total fixed
cost amounted to P400,000
Requirement b. B.1 - Break even point in units = Fixed cost/CM per unit
= 400,000/8
= 50,000 units
Proof:
Operating income -
B.2 - Break even point in Peso sales = Fixed cost/CM ratio
= 400,000/40%
= 1,000,000
Proof:
Sales 1,000,0000
Operating income -
Requirement C. C.1. If number of units sold next year exceeded the break-even point by
12,000 units, what is the profit or loss?
12,000 x 8 = 96,000
Proof:
Sales
C.2. If the total sales next year is short by P150,000 to break-even, what is the profit or
loss?
D.1 - How many units to sell in order to achieve the target profit?
D.2 - How much Peso sales to realized to achieve the target profit?
E.1 - How many units to sell to earned the desired after tax profit?
E.2 - How much Peso sales to realized the desired after tax profit?
Requirement F - Desired profit is P3.00 per unit. How many number of units to be sold?
Requirement H - Going back to Requirement A, assuming the same price per unit,
variable cost per unit and total fixed costs, however the total number of units projected
to sell next year is 95,000. Compute for the margin of safety in Peso sales, margin of
safety in units and margin of safety in percentage