CHAPTER 1

BASIC CONCEPTS IN MANAGEMENT ACCOUNTING

1. The main focus of management accounting is:

A. decision making.
B. the preparation of financial statements.
C. the preparation of budgets.
D. documenting cash flows.

2. Which of the following functions is most directly related to management by objective?

A. Reporting
B. Decision making
C. Control
D. Planning

3. The setting of objectives and the identification of methods to achieve those objectives is
called
A. planning
B. controlling
C. decision making
D. performance evaluation

4. In the planning and control process, what is the proper sequence of events?
A. Set goals, set objectives, develop plans, implement plans, evaluate performance.
B. Establish a master budget, set standard costs, develop variance analysis.
C. Develop engineered costs, develop pricing targets, calculate contribution margins
D. Identify variable costs, identify fixed costs, project the sales mix, determine
breakeven.

5. The primary objective of management accounting is to provide:

A. stockholders and potential investors with useful information for decision making.
B. banks and other creditors with useful information in making credit decisions.
C. management with information useful for planning and control of operations.
D. supervising government agencies with information about the company’s management
affairs.

6. Management accounting information

A. uses historical cost as the basis for reports to managers who are making decisions
about future courses of actions.
 B. should be developed and provided only if the benefits exceed its costs.
C. does not reflect the financial criteria of verifiability or consistency.
D. should serve the basic needs of investors and creditors.

7. Which of the following is included in the day-to-day work of the management team?
A. decision making
B. planning
C. controlling
D. all of the given choices

8. Which of the following statements is true when comparing managerial accounting to

financial accounting?
A. Managerial accounting places more emphasis on precision than financial accounting.
B. Both are highly dependent on timely information.
C. Both rely on the same accounting information system.
D. Managerial accounting is concerned with external decision makers.

9. Which of the following is true of managerial accounting rather than financial accounting?
A. The outputs of this accounting system are the basic financial statements.
B. The methods of this accounting system are established by an overseeing board.
C. The accounting methods are standardized to allow comparisons among companies.
D. The accounting system would be unique to each company.

10. Management accounting’s role in the control processes is to provide

A. managers with information that can be used to determine customer satisfaction levels.
B. investors and creditors the information about financial stability of the company.
C. managers with relevant information to compare actual results with expectations.
D. input to managers on the best ways to achieve continuous improvement in the
production process.

11. Which of the following statements is (are) true regarding financial and managerial
accounting?
I. Both are mandatory.
II. Both rely on the same underlying financial data.
III. Both emphasize the segments of an organization, rather than just looking at the
organization as a whole.
IV. Both are geared to the future, rather than to the past.

A. I, II, III and IV

B. Only II, III and IV
 C. Only II and III
D. Only II

12. Which of the following statement is FALSE?

A. Managerial accounting need not mostly conform to PFRS.
B. Financial accounting reports focus on subunits of the organization.
C. Managerial accounting is not required.
D. Managerial accounting focuses on the needs of internal users.

13. For internal users, managers are more concerned with receiving information that is:
A. completely objective and verifiable.
B. completely accurate and precise.
C. relevant, flexible, and immediately available.
D. relevant, completely accurate, and precise.

14. Which of the following statements is correct?

A. A certified public accountant can readily render management advisory services to the
public.
B. A CPA with MBA and DBM degrees is automatically qualified to render
management advisory services.
C. Competence as a standard in the rendition of management advisory services by a
CPA may be equated to having excellent scholarly preparation to include the usual
baccalaureate degree, an MBA and other post graduate studies.
D. Adequate training and experience in both the analytical approach and process in
a particular undertaking are requisites for the CPA to be involved in a
management advisory service engagement.

15. The following characterize management advisory services except

A. It involves decision for the future.
B. It is broader in scope and varied in nature.
C. It utilizes more junior staff than senior members of the firm.
D. It relates to specific problems where an expert’s help is required.

16. Which of the following statement is incorrect?

A. CPAs provide management advisory services to go around the ethical
constraints as mandated by the accounting profession.
B. Businesses hire management consultants to help define specific problems and develop
decisions.
C. CPAs who are performing management advisory service may be considered to be in
the practice of management consulting.
 D. Included in the practice of consulting is the provision of confidential service in which
the identity of the client is concealed.

17. The primary purpose of management advisory services is to

A. conduct special studies, preparation of recommendations, development of plans ad
programs, and provision of advice and assistance in their implementation.
B. provide services or to fulfill some social needs.
C. improve the client’s use of its capabilities and resources to achieve the objectives
of the organization.
D. earn the best rate of return on resources entrusted to its care with safety of investment
being taken into account and consistent with firm’s social and legal responsibilities.

18. The major reporting standard for presenting managerial accounting information is
A. relevance
B. generally accepted accounting principles
C. the cost principle
D. the current tax law

19. With respect to the time dimension, how does managerial decision compare with external
performance evaluation?
Managerial Decision External
Making Performance
A. Past Past
B. Past Future
C. Future Past
D. Future Future

20. Which of the following activities is not usually performed by a management accountant?
A. Assisting managers to interpret data in managerial accounting reports.
B. Designing systems to provide information for internal and external reports.
C. Gathering data from sources other than the accounting system.
D. Deciding the best level of inventory to be maintained.

21. How does the managerial decision making compare with external performance
evaluation?
Managerial Decision Making External Performance Evaluation
A. Detailed Detailed
B. Detailed More aggregated
C. More aggregated Detailed
D. More aggregated More aggregated
22. Management accountants would not
A. assist in budget planning.
B. prepare reports primarily for external users.
C. determine cost behavior.
D. be concerned with the impact of cost and volume on profits.

23. In the contemporary business environment, cost management focuses on

A. financial reporting and cost analysis.
B. common emphasis on standardization and standard costs.
C. development and implementation of the business strategy.
D. all of the given choices.

24. Management accounting is similar to financial accounting in that both:

A. are governed by financial reporting framework.
B. deal with economic events.
C. concentrate on historical data.
D. classify reported information in the same manner.

25. Managerial accounting provides data to achieve all of the following major objectives
except:
A. planning and control of costs.
B. supporting management planning
C. compliance with SEC reporting requirements
D. determining the costs of products

26. Internal reports must be communicated

A. daily
B. monthly
C. annually
D. as needed

27. Which consideration influences the frequency of an internal report?

A. The wishes of the managers receiving the report.
B. The frequency with which decisions that require the information are made.
C. The cost of preparing the report.
D. All of the given choices.

28. Which of the following statements about internal reports is not true?
A. The content of internal reports may extend beyond the double-entry accounting
system.
 B. Internal reports may show all amounts at market values.
C. Internal reports may discuss prospective events.
D. Most internal reports are summarized rather than detailed.

29. The informational needs of internal users/management:

A. are historical in nature
B. emphasize the company as a whole
C. emphasize accuracy over timeliness
D. may require more customized reports than external financial statements

30. Which of the following is most associated with managerial accounting?

A. Must follow generally accepted accounting principles.
B. May rely on estimates and forecasts.
C. Is prepared for users outside the organization.
D. Always reports on the entire entity.

31. Which statement about the extent of detail in a management accounting report is true?
A. It may depend on the frequency of the report.
B. It depends on the type of manager receiving the report.
C. It depends on the level of the manager receiving the report.
D. All of the given choices.

32. Which of the following characteristics is inherent to management accounting?

A. Reporting of historical information
B. Compliance to generally accepted accounting principles
C. Contribution approach income statement
D. External users of financial report

33. In order to be useful to managers, management accounting reports should possess all of
the following characteristics except:
A. Provide objective measures of past operations and subjective estimates about future
decisions
B. Be prepared in accordance with generally accepted accounting principles.
C. Be provided at any time management needs information.
D. Be prepared to report information for any unit of the business to support decision
making.

34. Which ethical standard of conduct requires that a managerial accountant be responsible to
prepare complete and clear reports and recommendations are based on appropriate
analyses of relevant and reliable information?
 A. competence
B. confidentiality
C. integrity
D. objectivity

35. Which ethical standard of conduct requires the managerial accountant have to
communicate information fairly and objectively?
A. competence
B. confidentiality
C. integrity
D. objectivity

36. Under which ethical standard of conduct does the managerial accountant have the
responsibility to refuse any gift, favor, or hospitality that would influence or appear to
influence his or her decision?
A. competence
B. confidentiality
C. integrity
D. objectivity

37. Under which ethical standard of conduct does the managerial accountant have the
responsibility to refrain from either actively or passively subverting the attainment of an
organization’s legitimate and ethical objectives?
A. integrity
B. competence
C. objectivity
D. confidentiality

38. Under which ethical standard of conduct does the managerial accountant have the
responsibility to disclose fully all relevant information that could reasonably expected to
influence an intended user’s understanding of the reports, comments, and
recommendations presented?
A. objectivity
B. competence
C. confidentiality
D. integrity

39. For managerial decision purposes, the volume of information should be evaluated on the
basis of
A. cost-benefit relationship
 B. A cost, but not benefit.
C. A benefit, but not cost.
D. Neither cost nor benefits, but some other criteria.

40. The first step in managerial decision making is to

A. specify the standard or expected outcome.
B. gather information about the consequence of each alternative.
C. identify a problem.
D. list alternative courses of action.

41. In a broad sense, cost accounting can be defined within the accounting system as
A. internal and external reporting that may be used in making nonroutine decisions and
in developing plans and policies.
B. external reporting to government, various outside parties, and stockholders.
C. internal reporting for use in management planning and control, and external
reporting to the extent its product-costing function satisfies external reporting
requirements.
D. internal reporting for use in planning and controlling routing operations.

42. The cost management function is usually under the :

A. chief information officer.
B. treasurer.
C. purchasing manager.
D. controller.

43. If a distinction is made between cost accounting and managerial accounting, managerial
accounting is more oriented toward
A. valuation inventory.
B. analysis of variances including spoilage.
C. financial reporting to third parties.
D. the planning and controlling aspects of the management process.

44. Which of the following does not describe managerial accounting?

A. internally focused.
B. emphasis on the future
C. externally focused
D. detailed information

45. The managerial function of controlling

A. is performed only by the controller of a company.
 B. is only applicable when the company sustains a loss.
C. is concerned mainly with a operating a manufacturing segment.
D. includes performance evaluation by management.

46. Planning is a function that involves

A. hiring the right people for a particular job.
B. coordinating the accounting information system.
C. setting goals and objectives for an entity.
D. analyzing financial statements.

47. In determining whether planned goals are being met, a manager is performing the
function of
A. planning
B. controlling
C. motivating
D. follow-up

48. Managerial accounting creates value by:

A. by forcing managers to analyze historical figures and interpret the results
B. by eliminating all pricing and costing errors
C. by focusing managers attention on the relationship between financial and non-
financial factors
D. all of the given choices.

49. Which of the following best describes what performance evaluation should be designed
to do?
A. Modify goal and objectives each month.
B. Establish sales goals and targets.
C. Compare actual results to plan.
D. Establish blame

50. Which of the following is a staff position?

A. vice-president of production
B. vice-president of marketing
C. vice-president of finance
D. plant foreman

51. Which management position is responsible for raising capital?

A. Internal auditor
B. Treasurer
 C. Controller
D. CFO

52. Each of the following would be considered a staff function EXCEPT the:
A. vice-president of finance
B. vice-president of corporate planning
C. vice-president of research and development
D. vice-president of marketing

53. Management accountants generally exercise which type of authority?

A. Company
B. Functional
C. Line
D. Staff

54. The treasurer function is usually not concerned with

A. investor relations
B. financial reports
C. short-term financing
D. credit extension and collection of bad debts.

55. Which of the following duties is usually assigned to the controller?

A. directing the granting of credit to clients
B. investing the organization’s funds
C. tax planning
D. independently evaluating the firm’s financial statements

56. Developing a company strategy for responding to anticipated new markets is an example
of:
A. decision making
B. controlling
C. planning
D. motivating

57. Deciding whether to sell a product or process it further is an example of a(n):

A. controlling activity
B. operating activity
C. planning activity
D. none of the given choices
58. Obtaining feedback is generally identified most directly with the management function of
A. Planning
B. Directing and motivating
C. Controlling
D. Decision making

59. A staff position

A. relates directly to the carrying out of the basic objectives of the organization.
B. is supportive in nature, providing service and assistance to other parts of the
organization.
C. is superior in authority to a line position.
D. none of these.

60. Which of the following statements is true regarding ethics in decision-making?

A. Since most business decisions are simply a matter of economics, ethical
considerations should be ignored.
B. Decision-making can have an ethical as well as an economic impact.
C. Managerial accountants do not face ethical issues.
D. Business managers will always agree on ethical choices.
 1. Budgeting is
 A. The process of creating a formal plan and translating goals into a quantitative format.

2. Which of the following statements is correct?

 D. Budgets foster the planning of operations, provide a framework for performance evaluation,
and promote communication and coordination among organization segments.

3. Budgets are related to the following management functions, except

 D. None of the above (choices are: planning, control, performance evaluation)

4. It involves the forecasting of realizable results over a definite period or periods……

 B. Budgeting

5. Which of the following statements regarding budgeting is incorrect?

 B. Capital expenditures budget shows the availability of the cash for investment.

6. Which of the following is not a primary purpose of preparing a budget?

 D. to make sure that the company expands its operations
7. Which of the following is not considered to be a benefit of participative budgeting?
 C. Top management need not to be concerned with the overall profitability of the current
operations because lower level managers set the final target for the budget.

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 University of San Jose – Recoletos
School of Business and Management
Accountancy and Finance Department
Strategic Business Analysis
Mr. Jun Brian Alenton
CPA, CMA, CAT, RCA, MICB, MBA

Module 2
Operational Budgeting

Answers to MCQ Exercises

Theories:

1. Budgeting is
a. the process of creating a formal plan and translating goals into a quantitative format.
b. a technique for comparing actual costs with standard costs.
c. a technique for determining the cost of manufactured products.
d. a means of product costing that emphasizes activities as basic cost objects.

2. Which of the following statements is correct?

a. Budgets ensure goal congruence between superiors and subordinates.
b. Budgets define responsibility centers and promote communication and coordination among
organization segments.
c. Budgets foster the planning of operations and facilitate the fixing of blame for missed budget
predictions.
d. Budgets foster the planning of operations, provide a framework for performance evaluation,
and promote communication and coordination among organization segments.

3. Budgets are related to the following management functions, except

a. planning.
b. control.
c. performance evaluation.
d. None of the above.

4. It involves the forecasting of realizable results over a definite period or periods, the planning and
coordination of the various operations and functions of the business to attain realizable results,
and control of variations from the approved plan.
a. Cost control
b. Budgeting
c. Internal control
d. Vouching

5. Which of the following statements regarding budgeting is incorrect?

a. Planning and control are the essential features of the budgeting process.
b. Capital expenditures budget shows the availability of idle cash for investment.
c. Budgeting provides a measuring device to which subsequent performances are compared and
evaluated.
d. Budget preparation is not the sole responsibility of any one organizational segment and is
prepared by combining the efforts of many individuals.

6. Which of the following is not a primary purpose of preparing a budget?

a. To communicate the company’s plans throughout the entire business organization
b. To provide a basis for comparison of actual performance
c. To control revenues and expenses during a given period
d. To make sure that the company expands its operations

7. Which of the following is not considered to be a benefit of participative budgeting?

Module 2 ACCTG202 Page 1 of 16

 a. Participative budgeting results in greater support of the organization because individuals at all
levels of the organization are recognized as being part of the team.
b. Participative budgeting involves those most directly affected.
c. Top management need not be concerned with the overall profitability of the current operations
because lower level managers set the final target for the budget.
d. Participative budgeting improves accountability because managers are held responsible for
reaching their goals, such that they cannot shift their responsibility by blaming the unrealistic
goals demanded by the budget.
8. A budget is a control technique that, among other things, establishes a performance standard.
However, a natural reaction of a manager whose efforts are to be evaluated is to incorporate
slack into the budget. Which of the following about budgetary slack is incorrect?
a. Budgetary slack can best be described as the planned overestimation of budgeted expenses.
b. The use of budgetary slack prohibits the use of the budget to control subordinate performance.
c. From the perspective of corporate management, the use of budgetary slack increases the
likelihood of inefficient resource allocation.
d. Budgetary slack eliminates the likelihood that a manager will receive the personal rewards that
follow from meeting the expectations of superiors.

9. The master budget

a. shows a comparison of forecasted and actual results.
b. is composed of the operating and financial budgets.
c. reflects only those costs controllable by the individual manager.
d. is the budget of the master of the firm.

10. In budgeting, a planning calendar is the

a. schedule of dates at which goals are to be met.
b. calendar year covered by the budget.
c. schedule of activities for the development and adoption of the budget.
d. schedule of dates when new products should be launched in the market.

11. A budget manual describes how a budget is to be prepared. It usually includes a budget planning
calendar and
a. the company policies regarding the authorization of transactions.
b. documentation of the accounting system software.
c. distribution instructions for budget schedules.
d. a chart of accounts.

12. The budget element (s) included in the financial budget process are the following, except the
a. budgeted balance sheet.
b. capital budget.
c. cash budget and budgeted statement of cash flows.
d. budget variance.

13. Following are parts of the operating budget, except

a. sales budget.
b. materials cost budget.
c. capital budget.
d. production budget.

14. The starting point in preparing a comprehensive budget is

a. the cash budget.
b. the budgeted income statement.
c. the sales forecast.
d. the production budget

Module 2 ACCTG202 Page 2 of 16

15. Which of the following cannot be used to improve the estimates of sales volume for a master
budget?
a. Management analysis and opinions
b. Statistical analysis including regression analysis and econometric studies
c. Estimation from previous sales volume and market history
d. None of the above

16. In budgeting process, top management should

a. limit their involvement because they lack the detailed knowledge of the daily operations.
b. be involved only in the approval process.
c. separate the budgeting process and the business planning process into two separate process.
d. be involved, including using the budget process to communicate goals.

17. A strategic budget,

a. is a short-range management tool.
b. describes the long-term position, goals, and objectives of an organization within its
environment.
c. involves evaluating specific long-term investment decisions.
d. is a short-range consideration related to liquidity.

18. When developing a budget, an external factor to consider in the planning process is
a. the activities of competitors.
b. development of new product.
c. the implementation of employees’ retirement plan.
d. a change in management.

19. A budget can be many tools in one. It can be used for planning, communications, motivation, and
control. For the budgetary process to serve effectively as a control tool,
a. the organization must have a budget director.
b. a budget committee must be organized.
c. forecasting procedures must be developed.
d. the budgeting and accounting system must be integrated or synchronized with the
organizational structure.

20. In developing an annual master budget, individual budget schedules are prepared. The budget
schedule that would provide the necessary input data for the direct labor budget would be the
a. schedule of cash receipts and disbursements.
b. sales forecast.
c. production budget.
d. raw materials purchases budget.

21. Among the components of the operating budget is the selling and administrative expenses budget,
which
a. is usually optional.
b. is composed only of fixed costs.
c. is difficult to allocate by month and therefore presented as a lump sum figure for the whole
year.
d. should be detailed so that the key assumptions can be better understood.

22. One component of the financial budget is the cash budget. It is prepared periodically to facilitate
cash planning and control. Its purpose is to anticipate cash needs while minimizing the amount
of idle cash. The cash receipts section of the budget includes all sources of cash, among which is
a. depreciation. c. extinguishment of debt.
b. factory supplies. d. loan proceeds.

Module 2 ACCTG202 Page 3 of 16

 University of San Jose – Recoletos
School of Business and Management
Accountancy and Finance Department

Strategic Business Analysis

Mr. Jun Brian Alenton CPA, CMA, CAT, RCA, MICB, MBA

23. The budget preparation process typically begins with the sales budget and continues through the
preparation of the budgeted financial statements. The last budget schedule prepared before the
financial statements
a. taxes and licenses budget.
b. cash budget.
c. selling and administrative expenses budget.
d. cost of goods sold budget.
24. When a company prepares its first draft of its budgeted income statement, management must
evaluate whether projected earnings would meet company objectives. This evaluation is based
on factors such as the following except
a. desired earnings per share.
b. average earnings for other firms in the industry.
c. desired price earnings ratio.
d. desired internal rate of return.

25. A continuous or rolling budget

a. works best for a firm that can reliably forecast events a year or more in the future.
b. presents the budgeted amounts for a range of activities so that the amounts can be adjusted
for changes in activity.
c. drops the current month or quarter and adds a future month or quarter as the current month
or quarter is completed.
d. assumes the continuous improvement of products and processes.

26. Which of the following statements about flexible budgets is false?

A flexible budget
a. is a series of budgets prepared for various levels of activity.
b. accommodates changes in activity levels so that actual results can be compared with
meaningful budget amounts.
c. is used to evaluate capacity use.
d. assumes that total fixed costs and unit variable costs are constant within the relevant range.

27. Zero-based budgeting (ZBB) is a budgetary process

a. in which the budget is largely based on the expenditures of the previous year.
b. that presents planned activities for a period of time, but does not present a firm commitment.
c. where the budget variance is always equal to zero.
d. that divides the activities of individual responsibility centers into a series of packages that are
prioritized after being evaluated from a cost-benefit perspective.

28. Unlike in zero-based budgeting, incremental budgeting

a. requires a manager to justify the entire budget for each year.
b. eliminates the need to review all functions periodically to obtain optimum se of resources.
c. simply adjusts the current year’s budget to allow for changes planned for the coming year.
Module 1 ACCTG201 Page 4 of 5
 d. starts from a base of zero.

29. A life-cycle budget is a budgeting tool or process

a. which summarizes all of a company’s budgets and plans.
b. in which estimates of revenues and expenses are prepared for each product beginning with
the product’s research and development phase and traced through its customer support
phase.
c. which emphasizes the cost of activities.
d. which requires each manager to justify his/her unit’s entire budget each budget period.

30. In this budgeting process, the budget is based not on the existing system, but on changes or
improvements that are to be made. It assumes the continuous improvement of products and
processes.
a. Zenkai Budgeting
b. Kaizen Budgeting
c. Keizan Budgeting
d. Zankei Budgeting

Problem 1: Comprehensive

Kayud Engineering produces two products, Diligence and Perseverance. The budget for the forthcoming
year to 31 March 2022 is to be prepared. Expectations for the forthcoming year include the following.

(a) Beginning Balances

KAYUD ENGINEERING
STATEMENT OF FINANCIAL POSITION AS AT 1 APRIL 2021
ASSETS PhP PhP
Non-current assets
Land and buildings 45,000
Plant and equipment at cost 187,000
Less accumulated depreciation 75,000
112,000
Current assets
Raw materials 7,650
Finished goods 23,600
Receivables 19,500
Cash 4,300
55,050
212,050
EQUITY AND LIABILITIES
Capital and assets
Share capital 150,000
Accumulated profits (Retained Earnings) 55,250
205,250
Current liabilities
Payables 6,800
212,050

(b) Finished products

The sales director has estimated the following.

Diligence Perseverance
(i) Demand for the company's products 4,500 units 4,000 units

Module 2 ACCTG202 Page 5 of 16

(ii) Selling price per unit P52 P54
(iii) Closing inventory of finished products at 31 March 2022 400 units 1,200 units
(iv) Opening inventory of finished products at 1 April 2021 900 units 200 units
(v) Unit cost of this opening inventory P20 P28
(vi) Amount of plant capacity required for each unit of product
Machining 15 min 24 min
Assembling 12 min 18 min
(vii) Raw material content per unit of each product
Material A 1.5 kilos 0.5 kilos
Material B 2.0 kilos 4.0 kilos
(viii) Direct labour hours required per unit of each product 6 hours 9 hours
Finished goods are valued on a FIFO basis at full production cost.

(c) Raw materials

Material A Material B
(i) Closing inventory requirement in kilos at 31 March 2022 600 1,000
(ii) Opening inventory at 1 April 2021 in kilos 1,100 6,000
(iii) Budgeted cost of raw materials per kilo P1.50 P1.00
Actual costs per kilo of opening inventories are as budgeted cost for the coming year.

(d) Direct labor

The standard wage rate of direct labor is P1.60 per hour.

(e) Production overhead

Production overhead is absorbed on the basis of machining hours, with separate absorption rates for
each department. The following overheads are anticipated in the production cost center budgets.
Machining Dept. Assembling Dept.
PhP PhP
Supervisors' salaries 10,000 9,130
Power 4,400 2,000
Maintenance and running costs 2,200 2,000
Consumables 3,400 500
General expenses 19,600 5,000
39,600 18,630

Depreciation is taken at 5% straight line on plant and equipment. A machine costing the company
P20,000 is due to be installed on 1 October 2021 in the machining department, which already has
machinery installed to the value of P100,000 (at cost). Land worth P180,000 is to be acquired in
December 2021.

(f) Selling and administration expenses

PhP
Sales commissions and salaries 14,300
Travelling and distribution 3,500
Office salaries 10,100
General administration expenses 2,500
30,400

(g) There is no opening or closing work in progress and inflation should be ignored.

(h) Budgeted cash flows are as follows.

Quarter 1 Quarter 2 Quarter 3 Quarter 4
Receipts from customers 99,500 120,000 134,500 100,000
Payments:
Materials 7,000 9,000 10,000 5,000

Module 2 ACCTG202 Page 6 of 16

 Wages 33,000 20,000 11,000 15,000
Other costs and expenses 10,000 10,000 25,000 5,000

Required: Prepare the following for the year ended 31 March 2022 for Kayud Engineering
Ltd.
(a) Sales budget
(b) Production budget (in quantities)
(c) Direct materials usage budget
(d) Direct labor budget
(e) Factory overhead budget
(f) Computation of the factory cost per unit for each product
(g) Direct materials purchases budget
(h) Cost of goods sold budget
(i) Cash budget
(j) A budgeted statement of financial performance and budgeted statement of financial position

Short Problems:

1. Ernie Trading Co. budgeted merchandise purchases of 40,000 units next month. The expected
beginning inventory is 12,000 units and the desired inventory at the end of next month is
15,000 units. Budgeted sales in units for next month is
a. 37,000. c. 55,000.
b. 43,000. d. 52,000

2. Edil Producers, Inc. will start its commercial operations on January 1, 200A. The sales forecast
per the sales management’s estimates for its first year of operations is 50,000 units. However,
the production manager estimated that only 80% of the sales forecast can be produced with
the available workforce and equipment. The product will be sold for P20 per unit. The budgeted
peso sales for Edil Producers, Inc.’s initial year of operations is
a. P800,000. c. P50,000.
b. P1,000,000. d. P40,000.

Module 2 ACCTG202 Page 7 of 16

3. Hershey Company has budgeted sales of 90,000 units in January; 120,000 units in February; and
180,000 units in March. The company has 20,000 units on hand on January 1. If Hershey
Company requires an ending inventory of finished goods equal to 20% of the following month’s
sales, the budgeted production during February should be
a. 96,000 c. 120,000
b. 108,000 d. 132,000

4. Tasyo Company has budgeted sales of 90,000 units in January; 120,000 units in February; and
180,000 units in March. The company has 20,000 units of finished goods and 35,000 pieces of
materials on hand on January 1. Each unit of product requires 5 pieces of materials. The desired
inventory of finished goods and materials at the end of each month is as follows:
Finished goods – 20% of next month’s sales
Materials - 25% of next month’s production needs
How many pieces of materials should the company plan to purchase in January?
a. 600,000 c. 468,000
b. 567,000 d. 552,500

THE NEXT TWO ITEMS ARE BASED ON THE FOLLOWING INFORMATION:

Nicely Wyn Corporation has the following budgeted production for four months:
April 50,000 June 45,000
May 40,000 July 60,000

Each unit of product requires 2 pieces of raw materials. The desired ending raw materials inventory for
each month 130% of the following month’s production needs, plus 2,000 pieces. (The April 1
inventory meets this requirement.)

The product is processed in two departments (Dept. A and Dept. B) and the direct labor standards are
as follows:
Hours per Unit Rate per Hour Labor Cost per Unit
Department A 6 P30 P180
Department B 2 40 80

5. What is the budgeted purchases of raw materials in June?

a. 51,000 c. 120,000
b. 84,000 d. 129,000

Module 2 ACCTG202 Page 8 of 16

 University of San Jose – Recoletos
School of Business and Management
Accountancy and Finance Department

Strategic Business Analysis

Mr. Jun Brian Alenton CPA, CMA, CAT, RCA, MICB, MBA

6. What is the budgeted direct labor cost for the month of May?
a. P13,000,000 c. P10,400,000
b. P11,700,000 d. P7,200,000

7. Fame Company has the following budget formula for factory overhead costs:
FOH = P5,000,000 per month + P300 per unit of product
If the company plans to produce 50,000 units in January, how much is the budgeted factory
overhead cost?
a. P20,000,000 c. P5,000,000
b. P15,000,000 d. P5,050,300

8. Bugnot Corporation’s budget includes the following data:

Budgeted sales 7,200
Inventories: Beginning Ending
Finished goods 300 400
Work-in-process in equivalent units 60 160

How many equivalent units should Bugnot Corporation plan to produce during the budget period?
a. 7,300 c. 7,000
b. 7,400 d. 7,200

Module 1 ACCTG201 Page 9 of 5

9. Annely Dolls, Inc. manufacturers a taking doll which has the following production cost data for
each unit of doll:
Materials: Voice box assembly purchased from an outside P100
Other materials 400
Labor – 8 hours at P30 per hour 240
Variable factory overhead (8 hours @ P20 per hour) 160
Total variable cost per doll P900
Fixed factory overhead – P10,000,000 per month

Budgeted sales of dolls for the last 3 months of the year are as follows:
October 30,000
November 40,000
December 70,000
As much as possible, the company does not want to stock finished goods inventory, so it produces
exactly the same quantity as the budgeted sales each month. However, in order to avoid
stock-out problems in December, it plans to have a December 1 inventory balance of 30%
of December’s budgeted sales. What is the budgeted production cost in November?
a. P54,900,000 c. P46,000,000
b. P56,800,000 d. P64,900,000

THE NEXT FOUR ITEMS ARE BASED ON THE FOLLOWING INFORMATION:

Bags, Inc. manufacturers leather bags with 3 zipper-type pockets. The company outsources the zippers
at P8 per unit. Each bag requires 5 direct labor hours to produce at a rate of P10 per hour.
Budgeted sales of bags for the first quarter of the year and the first month of the following
quarter are as follows:
January 900 units March 1,500 units
February 1,000 units April 1,800 units

Inventory data are as follows:

January 1: Leather bags 360
Zipper 1,620
End of each month:
Leather bags – 40% of the following month’s budgeted sales
Zipper – 60% of the following month’s production requirement

10. What is the budgeted production of leather bags for the first quarter?
a. 3,760 c. 4,400
b. 3,040 d. 3,400

11. What is the budgeted purchases of zipper for February?

a. 2,844 c. 4,356
b. 1,956 d. 3,600

Module 2 ACCTG202 Page 10 of 16

12. What is the total budgeted zipper and labor costs for the month of March?
a. P55,080 c. P122,472
b. P29,160 d. P119,880

13. Assume that on the average, a full-time factory worker works 188 hours per month and no
overtime is allowed, how many full-time equivalent factory workers are needed to produce the
budgeted output of leather bags in January?
a. 5 c. 100
b. 25 d. 23.94

THE NEXT TWO ITEMS ARE BASED ON THE FOLLOWING INFORMATION:

Cudal Company prepared the following figures for its only product as a basis for its 200B budget:
Budgeted sales 240,000 units
Selling price P5
Required materials per unit of product 2 pieces
Materials beginning inventory 20,000 pieces
Materials ending inventory 24,000 pieces
Purchase price per piece of material P3
Finished goods beginning inventory 15,000 units
Finished goods ending inventory 18,000 units
Direct labors hours,per 1,000 units of product 60 hours
Direct labor rate per hour P30
Variable factory overhead rate per hour P10
Fixed factory overhead P300,000

14. The budgeted peso amount of materials purchases is

a. P1,458,000. c. P1,470,000.
b. P2,450,000. d. P741,000.

15. The total budgeted manufacturing cost for 200B is

a. P2,341,200 c. P2,041,200
b. P884,658 d. P2,353,200

Module 2 ACCTG202 Page 11 of 16

 University of San Jose – Recoletos
School of Business and Management
Accountancy and Finance Department

Strategic Business Analysis

Mr. Jun Brian Alenton CPA, CMA, CAT, RCA, MICB, MBA

16. Gargalicana Company is preparing its cash budget for next year. Budgeted sales for four months
are as follows:
April P80,000 June 240,000
May 160,000 July 80,000
Fifty percent of total sales is cash sales. The balance, or the credit sales, is collected in the
following manner:
70% in the month following the sale
20% in the second month following the sale
10% in the third month following the sale
How much is the budgeted cash receipts in July?
a. P144,000
b. P104,000
c. P288,000
d. P208,000

17. All sales of Paige Company are on count. Budgeted sales for the first quarter of 200B are:
January P96,000
February 168,800
March 158,400
Based on the company’s collection experience, 60% of the sales is collected in the month after
the sale, 36% is collected in the second month following the sale, and the balance is
uncollectible. The budgeted cash receipts for March is
a. P118,368. c. P155,808.
b. P158,304. d. P135,840.

Module 1 ACCTG201 Page 12 of 5

18. Oyco Company’s budget committee came up with the company’s budgeted sales for the first five
months of the budget year 200B:
January P 76,000
February 52,000
March 56,000
April 64,000
May 68,000
Ninety percent of total sales is on credit, Historically, Oyco Company has had no significant bad
debt experience with its customers, and the receivables have been collected in the following
manner:
40% in the month of sale
30% in the month following the sale
25% in the second month following the sale
5% in the third month following the sale
However, due to the determination economic conditions brought about by the continuous
increases in oil prices and other external factors, the budget committee decided that the cash
forecast should include a provision for bad debts of 2% on credit sales beginning with the sales
for the month of April.

Because of this change in collection policy, the total cash inflow from April sales will be
a. P62,720. c. P62,848.
b. P56,448. d. P64,000.

Module 2 ACCTG202 Page 13 of 16