MAS - 1.2.5 Integrated Review & Refresher in Accountancy R.D.Balocating
MAS - 1.2.5 Integrated Review & Refresher in Accountancy R.D.Balocating
MAS - 1.2.5 Integrated Review & Refresher in Accountancy R.D.Balocating
BUDGETING
Budgeting is the process of formalizing plans and committing them to written, financial terms.
Budgets are plans dealing with the acquisition and use of resources over a specified time period. It is a plan of action
expressed in financial terms.
The steps involved in the planning and control process are as follows:
Develop a strategic plan. A strategic plan identifies strategies for future activities and operations, generally
covering at least five years.
Translate the strategic plan into long-term and short-term objectives.
From the objectives, develop short-term plans.
Develop budgets based upon the short-term plans.
Compare actual results with planned (budgeted) amounts.
Take corrective action, if necessary.
Advantages of Budgeting
Budgets force managers to plan.
Budgets provide information that can be used to improve decision making.
Budgets provide standards used for performance evaluation and control. Control involves comparing actual
results with budgeted amounts and taking corrective action whenever actual performance deviates significantly
from planned performance.
Budgets improve communication and coordination.
The budgeting process can help management identify and deal with potential bottlenecks or constraints before
they become major problems.
Master Budget
The master budget is a comprehensive financial plan consisting of various individual budgets.
Master Budget
Definition: budgets concerned with income-generating budgets concerned with cash flows and
activities financial position at end of period
Examples: sales budget cash budget
production budget budgeted balance sheet
direct materials purchases budget budget for capital expenditures
direct labor budget
overhead budget
selling and administrative expenses budget
ending finished goods inventory budget
cost of goods sold budget
budgeted income statement
1
MAS_1.2.5 INTEGRATED REVIEW & REFRESHER IN ACCOUNTANCY
R.D.BALOCATING
MULTIPLE CHOICE:
1. The starting point in preparing a comprehensive budget is
a. the sales forecast.
b. the cash budget.
c. the budgeted income statement.
d. the flexible expense budget.
3. Which of the following is a difference between a static budget and a flexible budget?
a. A flexible budget includes only variable costs, a static budget includes only fixed costs.
b. A flexible budget includes all costs, a static budget includes only fixed costs.
c. A flexible budget gives different allowances for different levels of activity; a static budget does not.
d. None of the above.
5. When preparing the series of annual operating budgets, management usually starts the process with the:
a. cash budget. c. sales budget.
b. budgeted balance sheet. d. production budget.
6. G Company has beginning inventory of 4,000 units. Management estimates that 35,000 units will be sold during the
first quarter with a 10% increase in sales each quarter. It is the company’s policy to maintain an ending inventory
equal to 25% of the next quarter’s sales. Each unit sells for P3.00. How much sales revenue should be budgeted for
the third quarter?
a. P84,700 b. P115,050 c. P126,000 d. P127,050
Each unit of product requires three pounds of direct material. The company’s policy is to begin each quarter with an
inventory of direct material equal to 30% of that quarter’s direct material production requirements. Budgeted direct
material purchases (in pounds) for the third quarter would be:
a. 114,600. b. 89,400. c. 38,200. d. 29,800.
8. The following beginning and ending inventory levels (in units) are planned for the upcoming fiscal year:
Two units of raw material are needed to produce each unit of finished product. If the company plans to sell 480,000
units during the upcoming fiscal year, the number of units it would have to manufacture during the year would be:
a. 510,000 units. b. 480,000 units. c. 450,000 units. d. 440,000 units.
9. D Company is planning to sell 2,000 units and produce 2,200 units during the upcoming month. Each unit requires 2
ounces of raw material at a cost of P15.00 per ounce and one-half hour of direct labor at a rate of P12.50 per
hour. Overhead is applied at a rate of 120% of direct labor costs. The company has 2,000 ounces of raw material in
its beginning inventory and wants to have 2,400 ounces in its ending inventory. How much direct labor cost should
be budgeted for the upcoming month?
a. P27,500 b. P16,500 c. P13,750 d. P12,500
10. E Company is planning to sell 2,000 units and produce 2,200 units during the upcoming month. Each unit requires 2
ounces of raw material at a cost of P15.00 per ounce and one-half hour of direct labor at a rate of P12.50 per
hour. Overhead is applied at a rate of 120% of direct labor costs. The company has 2,000 ounces of raw material in
its beginning inventory and wants to have 2,400 ounces in its ending inventory. How much overhead cost should be
budgeted for the upcoming month?
a. P27,500 b. P16,500 c. P13,750 d. P12,500
January P124,000
February 120,000
March 135,000
April 140,000
May 142,000
The company's past experience indicates that 50% of receivables are collected in the month of sale, 30% in the
month following the sale, and 20% in the second month following the sale. What amount should be budgeted as
cash receipts for March?
a. P135,000 b. P128,300 c. P67,500 d. P60,800
12. M Company budgeted direct materials purchases of P150,000 in April and P240,000 in May. It is the company’s
practice to pay for 70% of its purchases in the month of purchase and the remaining 30% in the following month.
Other costs are all paid during the month incurred. During May, the following items were budgeted:
14. Budji Corp. is preparing its budget for 2015. For 2014, the following were reported:
Sales (100,000 units) P1,000,000
Cost of good sold 600,000
Gross profit P400,000
Operating expenses *240,000
Net income P160,000