Practice Problem 3.2ABC Company expects sales volume to be 15,000 units in the first quarter, increasing 50% in eachsucceeding quarter. Unit sales price is P55. To meet this sales requirement, the company plans tomaintain ending finished goods inventory of 20% of each quarter’s sales volume forecast, as wellas ending raw materials inventory of 10% of each quarter’s production requirements. On January1, finished goods inventory contains 1,500 units, while direct materials inventory contains 1,050units. The ratio between the final product and the raw materials is 1:3, at an anticipated cost of P3per unit of raw material. To create the product, the company expects to utilize 1 direct labor hour.It pays its laborers P5 per hour.ABC Company expects variable manufacturing overhead costs to fluctuate on the basis of directlabor hours, as follows:• Indirect materials P5• Indirect labor hours P3• Electricity P2Meanwhile, fixed manufacturing overhead costs for the year are as follows:• Rent P80,000• Depreciation P50,000• Insurance P30,000Overhead is applied to production on the basis of direct labor cost.ABC Company’s variable selling expenses fluctuate on the basis of unit sales, as follows:• Sales commissions P4• Freight out P2• Packaging P1Meanwhile, general administrative expenses for the year are as follows:• Office salaries P75,000• Depreciation P50,000• Property taxes P40,000The company uses the regular corporate income tax of 25% and paid interest of P114.94 this year. Note for the Cost of Goods Sold Schedule: Use 1 as “Quantity per unit” and the POHR as “Costper unit” for the Manufacturing Overhead portion. Beginning cash for the year is P50,000. The company wants to maintain a balance of at leastP80,000 per quarter. • 65% of sales are collected in the quarter sold and 35% are collected in the following quarter.January 1 accounts receivable amounted to P20,000. This is expected to be collected in fullin the first quarter of this year. • 40% of raw materials are paid in the quarter purchased and 60% are paid in the followingquarter. January 1 accounts payable amounted to P10,000. This is expected to be paid bythe first quarter of this year. • Direct labor, manufacturing overhead, and selling and admin expenses are paid in thequarter incurred, except depreciation. • Management bought land for P150,000. Payment terms is as follows: 40% downpaymentin Q1, 20% amortization in each of the succeeding quarters.• Income taxes are paid in full at the end of the year.• Loans are repaid in the earliest quarter in which there is sufficient cash.• Net fixed assets, including the purchased land, amounted to P2,060,892.18 by the end ofthe year.• ABC Company had Common Stock of P426,410 and Retained Earnings on January 1 ofP500,000. Prepare the following:1. Budgeted income statement2. Cash budget3. Budgeted balance sheet
Practice Problem 3.2
ABC Company expects sales volume to be 15,000 units in the first quarter, increasing 50% in each
succeeding quarter. Unit sales price is P55. To meet this sales requirement, the company plans to
maintain ending finished goods inventory of 20% of each quarter’s sales volume
as ending raw materials inventory of 10% of each quarter’s production requirements. On January
1, finished goods inventory contains 1,500 units, while direct materials inventory contains 1,050
units. The ratio between the final product and the raw materials is 1:3, at an anticipated cost of P3
per unit of raw material. To create the product, the company expects to utilize 1 direct labor hour.
It pays its laborers P5 per hour.
ABC Company expects variable
labor hours, as follows:
• Indirect materials P5
• Indirect labor hours P3
• Electricity P2
Meanwhile, fixed manufacturing overhead costs for the year are as follows:
• Rent P80,000
•
• Insurance P30,000
Overhead is applied to production on the basis of direct labor cost.
ABC Company’s variable selling expenses fluctuate on the basis of unit sales, as follows:
• Sales commissions P4
• Freight out P2
• Packaging P1
Meanwhile, general administrative expenses for the year are as follows:
• Office salaries P75,000
• Depreciation P50,000
• Property taxes P40,000
The company uses the regular corporate income tax of 25% and paid interest of P114.94 this year.
Note for the Cost of Goods Sold Schedule: Use 1 as “Quantity per unit” and the POHR as “Cost
per unit” for the Manufacturing Overhead portion.
Beginning cash for the year is P50,000. The company wants to maintain a balance of at least
P80,000 per quarter.
• 65% of sales are collected in the quarter sold and 35% are collected in the following quarter.
January 1 accounts receivable amounted to P20,000. This is expected to be collected in full
in the first quarter of this year.
• 40% of raw materials are paid in the quarter purchased and 60% are paid in the following
quarter. January 1 accounts payable amounted to P10,000. This is expected to be paid by
the first quarter of this year.
• Direct labor, manufacturing overhead, and selling and admin expenses are paid in the
quarter incurred, except depreciation.
• Management bought land for P150,000. Payment terms is as follows: 40% downpayment
in Q1, 20% amortization in each of the succeeding quarters.• Income taxes are paid in full at the end of the year.• Loans are repaid in the earliest quarter in which there is sufficient cash.
• Net fixed assets, including the purchased land, amounted to P2,060,892.18 by the end of
the year.
• ABC Company had Common Stock of P426,410 and
P500,000.
Prepare the following:
1. Budgeted income statement
2. Cash budget
3. Budgeted balance sheet
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