Chapter 6 mas short term budgeting

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CHAPTER 6 BUDGETING [Problem 1] Zamboanga Company Production Budget For the Third Quarter, July-September, 200X

Budgeted sales Add: Finished goods – end. (40% x next month's sales)

Total goods available for sale Less: Finished goods – beg. Budgeted production

July 30,000

August 45,000

September 60,000

Total 135,000

18,000 48,000 10,000 38,000

24,000 69,000 18,000 51,000

20,000 80,000 24,000 56,000

20,000 155,000 10,000 145,000

[Problem 2] Aparri Company Budgeted Materials Purchases For The Year Ended, December 31, 2005

Budgeted production (units) x Standard materials/unit Materials used

Q1 80,000 3 240,000

Q2 120,000 3 360,000

Q3 200,000 3 600,000

Q4 180,000 3 240,000

Total 580,000 3 1,740,000

72,000 312,000 42,000 270,000 200 P

120,000 480,000 72,000 408,000 200 P

108,000 708,000 120,000 588,000 200 P

54,000(1) 594,000 108,000 486,000 200 P

54,000 1,794,000 42,000 1,752,000 200

Add: Materials inventory - end (20% x next quarter's sales) Total materials Less: Materials inventory-beg. Materials purchase (units)

x Standard materials cost per unit P Budgeted materials purchases P 54,000,000 P 81,600,000 P117,600,000 P97,200,000 P350,400,000 (pesos) (1)

90000 x 3 x 20% = 54,000

[Problem 3]

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a. Cagayan Corporation Budgeted Production For The Second Quarter, April-June 20__ April 90,000

Budgeted sales (units) Add: Finished goods inventory - ending (1) Total goods available for sale Less: Finished goods inventory - beginning Budgeted Production (1)

FG, end = 6000 + 20% (next month’s sales) FG- 6/30 = 6,000 + 20% (30,000) = 12,000

May 98,000

June 45,000

Total 233,000

25,600 15,000 115,600 113,000 14,000 25,600 101,600 87,400

12,000 57,000 15,000 42,000

12,000 245,000 14,000 231,000

units

b. Cagayan Corporation Budgeted Raw Materials Purchases For The Second Quarter, April-June, 20__

Budgeted Production (units) x Standard saterials / unit Materials used (lbs.) Add: Materials inventory – ending (1/4 x next month’s sales) Total materials Less: Materials inventory - beginning Budgeted materials purchase (in lbs.) (1)

April 101,600 4 lbs. 406,400

May 87,400 4 lbs. 349,600

June 42,000 4 lbs. 168,000

Total 231,000 4 lbs. 924,000

87,400 493,800 60,000 433,800

42,000 391,600 87,400 304,200

30000(1) 198,000 42,000 156,000

30,000 954,000 60,000 894,000

Materials inventory - 6/30 = 30,000 x 4 lbs. x 1/4 = 30,000 lbs.

[Problem 4]. a. JVC Company

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Budgeted Production and Direct Labor Costs For The First Quarter, January – March, 20B

Budgeted sales Add: Finished goods - ending (1) Total goods Less: Finished goods - beginning Budgeted production x DLH per unit Budgeted DLH x DL rate per hour Budgeted direct labor wages Pensions contribution (P0.25 / hr) Workers' compensation insurance

January February March 10,000 12,000 8,000 16,000 12,500 13,500 26,000 24,500 21,500 16,000 16,000 12,500 10,000 8,500 9,000 2 2 2 20,000 17,000 18,000 P 8 P 8 P 8 160,000 136,000 144,000 5,000 4,250 4,500

Total 30,000 13,500 43,500 16,000 27,500 2 55,000 P 8 440,000 13,750

2,000

1,700

1,800

5,500

8,000

6,800

7,200

22,000

16,000 13,600 14,400 P 191,000 P 162,350 P 171,900

44,000 P 525,250

(P0.10 per hour)

Employee medical insurance (P0.40 per hour)

Social security and employment taxes (10% of wages)

Budgeted direct labor costs

(1)

FG – ending = (100% x next month’s sales) + (50% x 2nd month’s sales)

b. 1. Budgeted production - also used in direct materials purchase budget, factory overhead budget and master budget 2. Budgeted direct labor hours - used in budgeted variable factory overhead and master budget [Problem 5] a. Bacolod Corporation Budgeted Production For The Third Quarter, July – September, 20A Budgeted sales (units) Add: Finished goods inventory - ending (80% x next month's sales)

Total goods available for sale Less: Finished goods inventory - beginning Budgeted production (units) b. Bacolod Corporation Budgeted Direct Materials Budget For The Third Quarter, July September, 20A

July 5,000

August 6,000

September 7,000

Total 18,000

4,800 9,800 5,600 4,200

5,600 11,600 4,800 6,800

5,600 12,600 5,600 7,000

5,600 23,600 5,600 18,000

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Budgeted production x Standard materials per unit Materials requirement Add: Materials inventory - ending (1) Total materials Less: Materials inventory - beginning Materials purchase (units) x Materials cost per unit Materials purchase (pesos) (1)

P P

101 18,000 6 108,000 42,000 150,000 35,000 115,000 0.40 46,000

Materials 211 18,000 4 72,000 28,000 100,000 32,000 68,000 P 3.60 P P 244,800 P

242 18,000 2 36,000 14,000 50,000 14,000 36,000 1.20 43,200

Mat. Inventory – 7/30 101 = 7,000 x 6 = 42,000 units 211 = 7,000 x 4 = 28,000 units 242 = 7,000 x 2 = 14,000 units

c. Bacolod Corporation Budgeted Direct Labor Costs For The Third Quarter, July – September, 20A Budgeted production (units) X Standard hours per unit Budgeted direct labor hours X Direct labor rate per hour Budgeted direct labor costs

Forming 18,000 0.80 14,400 P 8.00 P115,200

Assembly 18,000 2.00 36,000 P 8.00 P198,000

d. Bacolod Corporation Budgeted Factory Overhead For The Third Quarter, July – September, 20A Flexible Budget

Variable overhead Supplies Electricity Indirect labor Other Total variable overhead

Fixed overhead Supervision Property tax Depreciation Other Total fixed overhead

Rate per unit (33,000 units) P 2.20 P 72,600 1.00 33,000 2.00 66,000 0.80 26,400 P 6.00 198,000

30,000 3,600 33,200 16,200 83,000

Finishing 18,000 0.25 4,500 P 8.00 P 27,000

Total 54,900 P340,000

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Budgeted factory overhead

P 281,000

[Problem 6] a. Ilocos Corporation Sales Budget For The Year Ended, December 31, 20B

Budgeted sales (units) x Unit sales price Budgeted sales (pesos)

Thingone Thingtwo 60,000 40,000 P 70 P 100 P 4,200,000 P 4,000,000

b. Ilocos Corporation Budgeted Production For The Year Ended, December 31, 20B Budgeted sales (units) Add: Finished goods inventory - 01/01 Total goods available for use Less: Afinished good inventory - 12/31 Budgeted production (units)

Thingone 60,000 20,000 80,000 25,000 55,000

Thingtwo 40,000 8,000 48,000 9,000 39,000

c. Ilocos Corporation Budgeted Raw Materials Purchases For the Year Ended, December 31,20B A Budgeted materials need Thingone (55,000 x 4 lbs.)

Material B

220,000 lbs. 110,000 lbs.

(55,000 x 2lbs.)

Thingtwo (39,000 x 4 lbs.)

156,000 78,000

(39,000 x 2lbs.) (39,000 x 1lb.)

Total materials need Add: Materials inventory - 12/31 Total Less: Materials inventory - 01/01 Materials purchases (lbs.) x Materials cost per lb. Budgeted materials purchases (pesos)

C

P P

d. Ilocos Corporation Budgeted Direct Labor Cost Budget For The Year ended, December 31, 20B

376,000 36,000 412,000 32,000 380,000 8 P 3,040,000 P

188,000 32,000 220,000 29,000 191,000 5 P 955,000 P

39,000 lbs. 39,000 7,000 46,000 6,000 40,000 3 120,000

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Thingone 55,000 2 110,000 P 8 P 880,000

Budgeted production (units) x No. of hours per unit Direct labor hours x Standard DL rate per hour Budgeted direct labor cost

Thingtwo 39,000 3 117,000 P 9 P 1,053,000

e. Ilocos Corporation Budgeted Finished Goods Inventory – 12/31 December 31, 20B Thingone 25,000

Finished goods inventory - 12/31 x Unit costs: Materials [(4 x P8) + (2 x P5)]

P

Thingtwo 9,000

42

[(5 x P8) + (3 x P5) + 1 x P3)]

P

Direct labor (2 x P8)

58

16 27

(3 x P9)

Applied FOH (2 x P2)

4

( 3 x P2)

Total unit costs 62 Budgeted finished goods inventory - 12/31 P 1,550,000

P

6 91 819,000

[Problem 7] a. Sorsogon Corporation Flexible Budgets

Rate Variable costs Direct materials (P2 x 4) P8.00/MH Direct labor 1.50/MH Supplies 0.80/MH Utilities 1.20/MH Maintenance 0.30/MH Sub-total P11.80/MH Fixed costs Utilities Maintenance Depreciation

6,000 P

Machine Hours 7,000 8,000

48,000 P 9,000 4,800 7,200 1,800 70,800

56,000 P 11,250 5,600 8,400 2,100 83,350

4,000 6,000 12,000

4,000 6,000 12,000

9,000

72,000 P 12,000 6,400 9,600 2,400 102,400

176,000 13,500 7,200 10,800 2,700 210,200

4,000 6,000 12,000

4,000 6,000 12,000

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Sub-total Budgeted total costs b. Variable costs (7,000 MH x P11.80) Fixed costs Budgeted cost – 7,000 MH

P

22,000 92,800 P

22,000 105,350 P P 82,600 22,000 P104,600

c. Variable costs (8,000 MH x P11.80) Fixed costs Budgeted costs – 8,000 MH (standard)

P 94,400 22,000 P104,600

d. Actual manufacturing costs Less: Standard manufacturing costs Manufacturing variance

P 61,200 104,600 P(43,400) F

22,000 124,400 P

22,000 232,200

[Problem 8] Abra Company Schedule of Accounts Receivable Collections July – September 20__

Month of Sale May June July August September

P

Credit Sales 550,000 600,000 800,000

P

July 55,000 180,000 188,160 288,000

August

September

P

900,000

60,000 240,000

P

211,680 324,000

1,000,000

Budgeted collections from customer [Problem 9] 1. May sales (P150,000 x 20%) April sales (P180,000 x 50%) March sales (P100,000 x 25%) May collections

P

711,160 P

P

2. February sales (P160,000 x 5%) March sales (P100,000 x 30%) April sales (P180,000 x 80%) Accounts receivable - 4/30

P

3. February sales (P160,000 x 5%) March sales (P100,000 x 5%) April sales (P180,000 x 30%) May sales (P150,000 x 80%)

P

P

80,000

Total 55,000 240,000 796,160

210,000

745,680

235,200 360,000 885,200

595,200

P

P 835,680

30,000 90,000 25,000 145,000 8,000 30,000 144,000 182,000 8,000 5,000 54,000 120,000

P

P 2,432,040

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Accounts receivable - 5/31

P

187,000

4. Steps to reduce the balance in accounts receivable: a. Shorter credit period a1. Risk. Customer, especially those who have been accustomed with larger and longer credit term, may negatively react and look for a new supplier that will offer them a longer credit period so as not to strain their working capital requirement. a2. Advantage.It would reduce investment in accounts receivable balance, bad debts, collection costs and would increase income on investment. b. Strengthen collection policies: b1. Risk. Some customers may have an operating cycle longer than the offered credit terms and may not have the ability to meet accelerated payments. b2. Advantage.Increase cash inflows. [Problem 10] Lantoting Company Budgeted Cash Payments to Merchandise Supplies For the Month of May, 20__

Budgeted sales (in units) Add: Finished goods inventory - 5/1 (20% x 10,000)

Total goods available for sale Less: Finished goods inventory - 5/31 (20% x 12,000)

Budgeted production x Standard materials per unit Materials used Add: Materials inventory 5/1 (40% x 28,800)

Total materials Less: Materials inventory - 5/31 (40% x 12,200 units x 3 units)

Materials purchase (units) x Materials cost per unit Budgeted May purchases

P P

Payments to: April purchases (P508,800 x 10/30 x 98%) May purchases (P513,600 x 20/30 x 98%)

May 10,000

April 9,000

2,000 12,000

1,800 10,800

2,400 9,600 3 28,800

2,000 8,800 3 26,400

11,520 40,320

10,560 36,960

14,640 25,680 20 513,600

11,520 25,440 20 508,800

P P

P P

166,208 335,552 501,760

(20% x 9,000)

(40% x 26,400)

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[Problem 11] Cash paid for purchases in July = ? June 50,000 5,000 55,000 3,000 52,000 3 150,000 20,000 170,000 14,000 156,000

Budgeted sales (units) Add: Finished goods inventory - beginning Total goods for sale Less: Finished goods inventory - ending Budgeted production x Standard materials per unit Materials used Add: Materials inventory - beginning Total materials Less: Materials inventory - ending Materials purchase (units)

July 30,000 3,000 33,000 3,000 30,000 3 90,000 14,000 104,000 11,000 93,000

x Standard materials per unit

P

5

P

5

Materials purchase (pesos)

P

780,000

P

465,000

June purchases paid in July (P 780,000 x 1/3 x 98%) July purchases paid in July (P 465,000 x 2/3 x 98%) Cash payments to merchandise suppliers – July

P 254,800 303,800 P 558,600

[Problem 12] a. Budgeted cash disbursements in June and July: June

July

Materials Current month (P 243,600 x 54%) 1-month prior (P225,000 x 46%) Wages and salaries Marketing, general and administrative expenses

P 131,544 P 132,408 (P 245,000 x 54%) 103,500 112,056 (P 243,600 x 46%) 38,000 38,000

Current month (P49,300 x 54%)

26,622

28,080 (P52,000 x 54%))

1-month prior (P51,550 x 46%)

23,713

22,678 (P49,300 x 46%))

Budgeted cash disbursements

P 323,379 P 333,222

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1) Materials used (units) Materials inventory - ending (130% x next month’s production requirements)

May 11,900

June 11,400

14,820

15,600

July 12,000

15,860

(12,200 x 130%)

Materials inventory - beginning (130% x 11,900)

Materials purchases (units) x Cost of materials per unit P Budgeted materials purchases (pesos) P

(15,470) 11,250 20 P 225,000 P

(14,820) 13,180 20 P 243,600 P

(15,600) 12,260 20 245,200

2) M, G and AE = (15% x sales) – P 2000 May = (15% x P 357,000) – P 2,000 = P 51,550 June = (15% x P 342,000) – P 2,000 = P 49,300 July = (15% x P 360,000) – P 2,000 = P 52,000 b. Budgeted cash collections in May and June: From March sales (P 354,000 x 9%) From April sales (P 363,000 x 60% x 97%) (P 363,000 x 25%)

May P 31,860 211,266 90,750

From May sales (P357,000 x 60% x 97%) (P357,000 x 25%)

Collections from customers

P333,876

P

June 33,670 (P363,000 x 9%)

207,774 89,250 P329,694

c. Materials purchases in units in July is 13,840 units. [Problem 13] V. jovi Band company Cash Budget For The Quarter Ending, March 31, January Collections from sales January sales

84,672 21,600

February sales

February

March

Total

108,000

136,800

351,072

104,760 27,000

135,000

266,760

111,744 28,800

140,544

March sales

Total collections

106,272

239,760

412,344

758,376

89,200

60,400

65,600

215,200

Payments: Materials supplies

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Direct labor (Bud, Prod x P 30) 73,800 90,600 98,400 Variable OH (Bud. Prod x P 15) 36,900 45,300 49,200 Fixed OH (5000 x P 25) 125,000 125,000 125,000 Var. expenses (Sales x 11) 26,400 33,000 35,200 Fixed expenses (P 12000 x P5000) 17,000 17,000 17,000 Total 368,300 371,300 390,400 Net operating cash inflows (outflows) (262,028) (131,540) 21,944 Investing and financing activities: C. Salonga investment 50,000 Bank loan 150,000 Acquisition of assets (200,000) Interest payments (3,000) (3,000) (3,000) Principal payments (30,000) Net investing and financing activities (3,000) (3,000) (33,000) Net cash inflows (outflows) (265,028) (134,340) (11,056) Add: Cash balance, beginning 0 10,000 10,000 Cash balance , ending, before Financing (265,028) (124,540) (1,056) Borrowings 275,028 134,540 11,056 Cash balance - end P 10,000 P 10,000 P 10,000 P Schedules: 1. Budgeted sales (@ 150) Finished goods inventory - ending [100 + (10% x next month's sales)]

262,800 131,400 375,000 94,600 51,000 1,130,000 (371,624) 50,000 150,000 (200,000) (9,000) (30,000) (39,000) (410,624) 0 (410,624) 420,624 10,000

January 2,400

February 3,000

March 3,200

400

420

500

(340) 2,460

(400) 3020

(420) 3,280

Finished goods inventory - beginning [100 + (10% x 24,000)]

Budgeted production 2. Budgeted materials purchases (units) (2460 + 2000)

x Materials cost/unit P Budgeted materials purchase (pesos) P

4,460 20 P 89,200 P

[Problem 14] a. Schedule of cash collections in September: July credit sales (P 400,000 x 8%) August credit sales (P 500,000 x 70%) September credit sales (P 580,000 x 20%)

3,020 20 P 60,400 P

P

32,000 350,000 116,000

3,280 20 65,600

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September cash sales September collections b. Schedule of payments to suppliers in September: August purchases September purchases (P 250,000 x 25%) September payments to suppliers

P P P

280,000 778,000 105,000 62,500 167,500

c. Isabela Corporation Cash budget For The Month of September, 2000 Cash balance, Sept. 01 P 80,000 Add: Cash collections from sales 778,000 Total cash 858,000 Less: Payments: To merchandise suppliers P 167,500 Selling and administrative expenses 80,000 Dividends 40,000 287,500 Cash balance, Sept. 30 P 570,500 [Problem 15] 1. Cricket Company Cash Budget For The Month Ended, July 30, 20__ Cash balance, July 1 Add: Collections from customers: June sales (P 30,000 x 48%) P 14,400 July sales (P 40,000 x 50%) 20,000 Total cash Less: Payments: Merchandise suppliers June purchase (P10,000 x 50%) P 5,000 July purchase (P 15,000 x 50%) 7,500 12,500 Marketing and administrative expenses 10,000 Dividends 15,000 Cash balance before financing Add: Borrowings (P 5,000 – 1,900) Cash balance, July 31 2. Financial actions to be taken: a. Find ways to reduce cost and expenses b. Find ways to increase sales [Problem 16] a. La Union Corporation Budgeted Cash Collections October – December 2000

P

5,000 34,400 39,400

P

37,500 1,900 3,100 5,000

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Month of sales Previous to October October sales November sales December sales Collections from customers

Amount October November December P 245,000 P 210,000 P 30,000 P 1,050,000 315,000 630,000 P 73,500 900,000 270,000 540,000 850,000 75,000 P

525,000 P

930,000 P

688,500

Total 240,000 1,018,000 810,000 75,000 P2,143,500

b. La Union Corporation Cash Budget For The Fourth Quarter, October – December 2000

Collections from customers Payments: Merchandise purchases Payroll Lease payments Advertising Equipment purchases Total Operating inflows (outflows) Proceeds of loan Interest payment Net cash inflows (outflows) Cash balance - beginning Cash balance - ending

P

October November December 525,000 P 930,000 P 688,500 P

Total 2,143,500

P

520,000 120,000 20,000 70,000 30,000 760,000 (235,000) 300,000 (12,000) 53,000 250,000 303,000 P

1,860,000 345,000 60,000 230,000 30,000 2,525,000 (381,500) 300,000 (36,000) (117,500) 250,000 132,500

[Problem 17] a. Collections from customers – July 2007 Cash sales July sales [(P 1,500,000 – P 350,000) x 70%] June sales

720,000 110,000 20,000 80,000 930,000 0 (12,000) (12,000) 303,000 291,000 P

P

620,000 115,000 20,000 80,000 835,000 (146,500) (12,000) (158,500) 291,000 132,500 P

350,000 805,000 420,000

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July collections b. Cash payments to suppliers – July 2007 July purchases (P 800,000 x 40%) June purchases July payments to suppliers

P

1,575,000

P

320,000 280,000 600,000

P

c. Ilocos Norte Corporation Cash Budget For The Month Ended July 31, 2007 Cash balance, July 1 Add: Collections from customers Other revenues Bank borrowings Total cash available for use Less: Payments Merchandise suppliers Operating expenses (1) Note payable paid Equipment purchases Interest Cash balance, July 31

(1)

Operating expenses incurred Accrued expenses – beginning - end Prepaid expenses – beginning - end Operating expenses paid

d. Ilocos Norte Corporation Income Statement For The Month Ended, July 31, 2007

P P

1,575,000 30,000 150,000

80,000

1,755,000 1,835,000

600,000 316,000 60,000 2,000 P

P

P

320,000 45,000 (60,000) (23,000) 34,000 316,000

1,178,000 657,000

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Sales Less: Cost of goods sold: Inventory, July 1 P Add: Purchases Total goods available for use Less: Inventory, July 31 Gross profit Less: Operating expenses Depreciation expense Operating Income Add: Other revenues (1) Interest expense Net Income (1)

P

1,500,000

350,000 800,000 1,150,000 400,000

750,000 750,000

320,000 15,000

335,000 415,000

26,500 (2,000)

24,500 439,500

P

Cash received form other revenues Accrued income – July 1 - July 31 Deferred revenues – July 1 - July 31 Other revenues earned

P

P

30,000 (12,000) 14,500 3,000 (9,000) 26,500

[Problem 18] a and b Revenues earned/Expenses incurred Accruals – beginning - ending Prepayments – beginning - ending Cash received/cash paid

(Revenues) a P 120,000 23,000 (40,000) (22,000) 8,000 P 89,000

(Expenses) b P 90,000 12,000 (15,000) (9,000) 11,000 P 89,000

[Problem 19] Patz Company Budgeted Income Statement For The Second Quarter Ended, June 30, 20xx Sales (P 500,000 + P 1,000,000) Less: Cost of goods sold Gross profit Less: Operating expenses: Variable marketing Fixed marketing Fixed administrative Doubtful accounts (2% x 1.5 million) Depreciation expense (P 800,000/20) Net income [Problem 20] Mexia Inc. Budgeted Income Statement For The Year Ended, December 31, 2007

P

P

150,000 50,000 40,000 30,000 40,000 P

1,500,000 900,000 600,000

310,000 290,000

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Sales (P 9,000 x 110% x 105%) Less: Cost of goods sold (P 6,000 x 106% x 105%) Gross profit Less: Commercial expenses Marketing P 780 Administrative (P 900 + P 420) 1,320 Operating income Less: Interest expense [P 140 + 10% (P 300)] Income before income tax Less: Income tax Net income

P

P

10,395 6,678 3,717 2,100 1,617 170 1,447 579 868

[Problem 21] Easecom Company Budgeted Income Statement For The Year Ended, December 31, 2007 (in thousands) Sales: Equipment (P 6,000 x 110% x 106%) P Maintenance contracts (P 1,800 x 106%) Less: Cost of goods sold (P 4,600 x 110% x 103%) Gross profit Less: Operating expenses: Marketing (P 600 + P 250) Administration Distribution (P 150 x 110%) Customer maintenance (P 1,000 + P 300) Operating income

[Problem 22] Mabuhay University Motor Pool Division Performance Report

6,996 1,908

P

850 900 165 1,300 P

8,904 5,212 3,692

3,215 477

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For The Month of March 20xx Variable Costs Gasoline Oil, minor repairs, parts and supplies Outside repairs Sub-total

P

Actual Costs 5,323.00 P 380.00 50.00 5,753.00

Flexible Budget 5,512.50 P 378.00 225.00 6,115.50

Variance UF (F) (189.50)F 2.00UF (175.00)F (362.50)F

Fixed Cost Insurance Salaries and benefits Depreciation Sub-total

525.00 2,500.00 2,310.00 5,335.00

500.00 2,500.00 2,200.00 5,200.00

25.00UF 0.00 110.00UF 135.00UF

Totals

P

11,088.00 P

11,315.50 P

(227.50)F

Cost per mile (Costs + 63,000 miles)

P

0.1760

0.1796

(0.0036)F

(1)

P

P

Gasoline = 63,000 x P1.40/16 = P 5,512.50 Oil, etc., = 63,000 x P 0.006 = P 378

[Problem 23] a. Triple-F Health Club Cash Budget For The Year Ended October 31, 20C (in thousands) Receipts: Annual membership fees (P 355 x 110% x 103%) Lesson and class fee (P 234 x 234/180) Miscellaneous (P 2 x 2/1.5) Payments: Manager’s salary and benefits (P 36 x 115%) Regular employees wages and benefits (P 190 x 115%) Lesson and class employee wages and benefits (P 195 x 234/180 x 115%) Travel and supplies (P 16 x 125%) Utilities (P 22 x 125%) Mortgage interest (P360 x 9%) Miscellaneous (P2 x 125%) Equipment payable Accounts payable for supplies and utilities Amortization of mortgage payable Purchase of new equipment Net cash inflows Add: Cash balance - Oct. 31,20B Cash balance - Oct. 31, 20C

P

402.2 304.2 2.7

P 708.9

41.4 218.5 291.5 20.0 27.5 32.4 2.5 10.0 2.5 30.0 25.0

701.3 7.6 7.3 P 14.9

b. Problem(s) discloses by the prepared budget: 1. Incremental revenues are basically determined by the membership base, which may be considered relatively non-controllable.

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2. The presence of the mortgage payable and its attendant interest expense fundamentally drain the cash position of the health club. 3. Possible areas for cost saving should be identified to compensate the accelerating trend in costs and expenses. c. Joy Tan, the club general manager, is correct that the board’s goals to purchase the adjoining property in four or five years time is unrealistic. The adjoining property costs P300,000 and would be requiring in nominal terms P60,000 annual savings in the next five years. Considering that the recent net cash inflows from operations is only P7,600 in 20C, the required P60,000 annual savings would be extremely difficult for the business to achieve.