AEC6

BUDGETING
September 24, 2019
NAME: _______________________

1. The Manila Corporation manufactures and sells two products, X and Y. In July 2015, Manila Corporation’s
budget department gathered the following information in order to project sales and budget requirements for
2016.

2016 Projected Sales:

Products Units Price
X 60,000 P 70
Y 40,000 100

2016 Inventory in units Expected

Products 1/1/16 12/31/16
X 20,000 25,000
Y 8,000 9,000

In order to produce one unit of X and Y, the following raw materials are used:

Amount used per unit

Material Unit
X Y
A Kilos 4 5
B Kilos 2 3
C Each 0 1

Projected data for 2016 with respect to materials is as follows:

Expected Purchase Expected Inventory Desired Inventory

Raw Material Price Jan. 1, 2016 Dec. 31, 2016
A P 8.00 32,000 kilos 36,000 kilos
B P 5.00 29,000 kilos 32,000 kilos
C P 3.00 6,000 each 7,000 each

Projected direct labor requirements for 2016 and rates follow:

Product Hours Per Unit Rate per Hour

X 2 P 3.00
Y 3 P 4.00

Overhead is applied at the rate of P2.00 per direct labor hour.

REQUIRED: Based on the above projections and budget requirements for 2016 for X and Y, prepare the
following budgets for 2016.

1. Sales budget (in pesos)

2. Production budget (in units)
3. Raw materials usage budget (in quantities)
4. Raw materials purchase budget (in pesos)
5. Direct labor budget (in pesos)
6. Budgeted finished goods inventory at December 31, 2016 (in pesos)
2. Araneta Retail Store seeks your assistance to develop cash and other budget information for May, June, and
July, 2016. At April 30, 2016, the company had cash of P5,500, accounts receivable of P437,000, inventories of
P309,400, and accounts payable of P133,055.

The budget is based on the following assumptions:

a. Sales
1. Each month’s sales are billed on the last day of the month.
2. Customers are allowed 3% discount if payment is made within 10 days after the billing date. Accounts
receivable are books gross.
3. Sixty percent of the billings are collected within the discount period, 25% are collected by the end of the
month, 9% are collected by the end of the second month, and 6% prove uncollectible.
b. Purchases
1. 54% of all purchases of materials and selling, general and administrative expenses are paid the month
purchased and the remainder in the following month.
2. Each month’s units of ending inventory is equal to 130% of the next month’s units of sales.
3. The cost of each unit of inventory is P20.
4. Selling, general and administrative expenses, of which P2,000 is depreciation, are equal to 15% of the
current month’s sales.

Actual and projected sales are as follows:

2016 Pesos Units 2016 Pesos Units

March P 354,000 11,800 June P 342,000 11,400
April P 363,000 12,100 July P 360,000 12,000
May P 357,000 11,900 August P 366,000 12,200

REQUIRED:

Prepare cash forecast for the months of May, June, and July 2016, based on the above data and supported by the
following schedules.

a. Cash receipts from accounts receivable.

b. Cash disbursements on accounts payable.
c. Purchases of inventory.
d. Cash disbursements on selling, general and administrative expenses.