Exercises

1. Diamond Inc., a distributor of jewelry throughout the Philippines, is in the process of assembling a
cash budget for the first quarter of 2010. The following information has been extracted from the
company’s accounting records:

• All sales are on account. 60% of customer accounts are collected in the month of sale. 35%
are collected in the following month. Uncollectible accounts amounting to 5% are
anticipated, and management believes that only 20% of the outstanding accounts on
December 31, 2009 will be recovered and the recovery will be in January 2010. In
estimating doubtful accounts, Diamond uses the allowance method.

• 70% of the merchandise purchased is paid in the month of purchase. The balance is paid in
the month after the month of purchase.

• The December 31, 2009 balance sheet disclosed the following selected figures: Cash –
P60,000; Accounts Receivable – P165,000; Accounts Payable – P66,000.

• The company maintains a P60,000 minimum cash balance at all times. Financing is
available at an 8% interest rate, with borrowings taking place at the beginning of the month
and repayments occurring at the end of the month. Interest is paid at the time of repaying
the principal and computed on the portion of principal repaid at that time.

• Additional data:

January February March

Sales P 450,000 P540,000 P 555,000
Merchandise Purchase 270,000 300,000 420,000
Cash Operating Cost 93,000 72,000 135,000
Proceeds from sale of equipment - - 15,000

Required: a. Prepare a schedule that shows the firm’s total cash collections for January to March.
b. Prepare a schedule that shows the firm’s total cash disbursements for January to March.
c. Prepare a schedule that shows the firm’s cash needs, if any. The schedule should also
disclose the ending cash balance for each month.

2. Pepeng Corporation manufactures two different types of coils used in electric motors. The
controller compiled the following data:

• Sales forecast for 2010 (all units to be shipped in 2010):

Product Units Price per unit

Light Coil 60,000 P 130
Heavy Coil 40,000 190
 • Raw-material prices and inventory levels:

Raw Material Inventories, 1/1/10 Inventories, 12/31/10 Anticipated Purchase

Price per lb or per unit
Sheet Metal 32,000 lb 36,000 lb P 16
Copper Wire 29,000 lb 32,000 lb 10
Platform 6,000 units 7,000 units 6

• Use of raw material:

Amount used per unit (coil)

Raw Material Light Coil Heavy Coil

Sheet Metal 4 lb 5 lb
Copper Wire 2 lb 3 lb
Platform - 1 unit

• Direct Labor requirements and rates:

Product Hours per coil Rate per hour

Light Coil 4 P 15
Heavy Coil 6 20

• Finished-goods inventories (units):

Product 1/1/10 12/31/10

Light Coil 20,000 25,000
Heavy Coil 8,000 9,000

• Manufacturing Overhead:

Overhead Cost Item Activity-Based Rate

Purchasing and material handling P 0.50 per pound of sheet metal and copper wire purchased
Depreciation, Utilities and Inspection P 8.00 per coil produced (either type)
Shipping P 2.00 per coil shipped (either type)
General Manufacturing Overhead P 6.00 per direct labor hour

Required: Based on the data provided compute the following for the year 2010:

a. Sales in peso. d. Raw Materials purchased in

peso
b. Coils produced e. Direct Labor in peso
c. Raw materials purchased in quantities f. Manufacturing overhead in
peso

3. Polgas Merchandiser asks your services to develop cash and other budget information for the first
quarter of 2010. On December 31, 2009, the store had the following selected account balances:

Cash P 55,000
Accounts Receivable 4,370,000
 Inventories 3,094,000
Accounts Payable 1,330,500

The following data are relevant to the company’s operations:

Sales:
• Each month’s sales are billed on the last day of the month.
• Customers are allowed a 3% discount if payment is made within 10 days after the billing
date. Receivables are booked at gross.
• 60% 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 the balance is considered
uncollectible.

Purchases and Expenses:

• 54% of all purchases, and selling, general and admin expense are paid in the month
incurred and the balance is paid in the following month.
• Each month’s units of ending inventory are equal to 130% of the next month’s sales in
units.
• Unit cost of inventory is P200.
• Selling, general and admin expense, of which P20,000 is depreciation per month, are equal
to 15% of the current month’s sales.

Actual and projected sales are as follows:

Month Units Peso Value

November 2009 (actual) 11,800 P 3,540,000
December 2009 (actual) 12,100 3,630,000
January 2010 (projected) 11,900 3,570,000
February 2010 (projected) 11,400 3,420,000
March 2010 (projected) 12,000 3,600,000
April 2010 (projected) 12,200 3,660,000

Required: Based on the following, compute for the required amounts:

a. Purchases in peso for January and February

b. Cash disbursement for February
c. Cash collections for the month of January
d. Number of units to be purchased during the month of March.

4. Weldon Industrial Gas Corporation supplies acetylene and other compressed gases to
industry. Data regarding the store's operations follow:

•Sales (all on account) are budgeted at P360,000 for November 2010, P380,000 for
December 2010, and P350,000 for January 2011.

• Collections are expected to be 75% in the month of sale, 20% in the month
following the sale, and 5% uncollectible. Weldon uses the allowance method for
estimating doubtful accounts.
 • The gross profit rate based on sales is 35%.

• The company purchases 60% of its merchandise in the month prior to the month
of sale and 40% in the month of sale. Payment for merchandise is made in the month
following the purchase.

• Other monthly expenses to be paid in cash are P21,900.

• Monthly depreciation is P20,000.

• Ignore taxes.

Weldon Industrial Gas Corporation

Balance Sheet
October 31, 2010
Assets
Cash ............................................................................................. P 16,000
Accounts receivable
(net of allowance for uncollectible accounts) .......................... 74,000
Inventory ..................................................................................... 140,400
Property, plant and equipment
(net of P500,000 accumulated depreciation) ........................... 1,066,000
Total assets ..............................................................................P1,296,400

Liabilities and Stockholders’ Equity

Accounts payable ........................................................................ P 240,000
Common stock ............................................................................. 640,000
Retained earnings ........................................................................ 416,400
Total liabilities and stockholders’ equity ...................................P1,296,400

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.
c. Prepare Cash Budgets for November and December.
d. Prepare Budgeted Income Statements for November and December.
e. Prepare a Budgeted Balance Sheet as of the year ended of December 31, 2010.

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