STRATEGIC COST MANAGEMENT

1st Term, A.Y 2020 - 2021

BASTRCSX
Module 5 – Financial Planning and Budgets
Activity no. 5

NAME: (surname first)______________________________ SCORE:__________________

YR./ SEC.: _________________ DATE: ___________________

General Instruction: Type your answers beside the questions. (1pt each)

PART I.
Ballan Inc. estimates its units sales for the coming months to be as follows:

March 280,000
April 260,000
May 250,000
June 230,000
July 240,000
August 225,000

Ballan maintains inventory at budgeted sales needs for the next month. March 1 inventory
will be 248,000 units.

a. How much is the purchases for March?

b. How much is the purchases for April?
c. How much is the purchases for May?
d. How much is the purchases for June?
e. How much is the purchases for July?

PART II.
Superior Company manufactures a single product. It keeps its inventory of finished goods at
twice the coming month's budgeted sales and inventory of raw materials at 150% of the
coming month's budgeted production. Each unit of product requires five pounds of
materials, which cost $3 per pound. The sales budget is, in units: May, 10,000; June,
12,400; July, 12,600; August, 13,200.

a. Compute budgeted production for June.

b. Compute budgeted production for July.
c. Compute budgeted material purchases for June in pounds

1
 d. Compute budgeted material purchases for June in dollars.
PART III.
Ironwood sells a single product for $10. The purchase cost is $4 per unit and Ironwood pays
a 20% sales commission. Fixed costs are $45,000 per month including $12,000
depreciation, and the company maintains inventory equal to budgeted sales needs for the
following month. The following budgeted data are available.

Inventory on hand February 1 28,000 units

Budgeted sales
- February 24,000 units
- March 26,000 units
- April 25,000 units

a. Compute total budgeted income for February

b. Compute total budgeted income for March.
c. Find budgeted inventory at March 31 in units
d. Find budgeted inventory at March 31 in dollars.
e. Find budgeted purchases for March in units
f. Find budgeted purchases for March in dollars.

PART IV.
Webster Company has the following sales budget.

January $200,000
February $240,000
March $300,000
April $360,000

Cost of sales is 70% of sales. Sales are collected 40% in the month of sale and 60% in
the following month. Webster keeps inventory equal to double the coming month's
budgeted sales requirements. It pays for purchases 80% in the month of purchase and
20% in the month after purchase. Inventory at the beginning of January is $190,000.
Webster has monthly fixed costs of $30,000 including $6,000 depreciation. Fixed costs
requiring cash are paid as incurred.

a. Compute budgeted cash receipts in March.

b. Compute budgeted accounts receivable at the end of March.
c. Compute budgeted inventory at the end of February.
d. Compute budgeted purchases in February.
e. March purchases are $290,000. Compute budgeted cash payments in March to
suppliers of goods
f. Compute budgeted accounts payable for goods at the end of February.
g. Cash at the end of February is $45,000. Cash disbursements are not required for
anything other than payments to suppliers and fixed costs. Compute the budgeted
cash balance at the end of March.

STRATEGIC COST MANAGMENT 2

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

• Sales are budgeted at $330,000 for November, $300,000 for December, and
$320,000 for January.
• Collections are expected to be 85% in the month of sale, 14% in the month
following the sale, and 1% uncollectible.
• The cost of goods sold is 60% of sales.
• The company purchases 80% of its merchandise in the month prior to the month
of sale and 20% 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 $21,200.
• Monthly depreciation is $21,000.
• Ignore taxes.

Statement of Financial Position

October 31
Assets:
Cash ................................................................................................. $ 22,000
Accounts receivable (net of allowance for uncollectible accounts) . 83,000
Inventory ........................................................................................... 158,400
Property, plant and equipment (net of $594,000 accumulated
depreciation) ................................................................................. 1,004,000

Total assets $1,267,400

Liabilities and Stockholders’ Equity:

Accounts payable ............................................................................. $ 196,000

Common stock ................................................................................. 620,000

Retained earnings ............................................................................ 451,400

Total liabilities and stockholders’ equity .......................................... $1,267,400

Required:

a. How much is the expected cash collection for the month of November?
b. How much is the expected cash collection for the month of December?
c. How much is the expected disbursement for merchandise for November?
d. How much is the expected disbursement for merchandise for December?
e. How much is the excess (deficiency) of cash available over disbursement for
November?
f. How much is the excess (deficiency) of cash available over disbursement for
December?
g. How much is the net operating income for November?
h. How much is the net operating income for December?
i. How much is the total assets as of December 31?
j. How much is the total liability as of December 31?
k. How much is the total retained earnings as of December 31?

STRATEGIC COST MANAGMENT 3

 Awit 100:5

Sapagka’t ang Panginoon ay mabuti; ang Kaniyang kagandahang-loob ay magpakailan man;

at ang kaniyang pagtatapat ay sa lahat ng sali’t-saling lahi.

STRATEGIC COST MANAGMENT 4

ANSWER KEY: (1pt each)

PART I.

SOLUTION:

a. March purchases: 292,000 units [280,000 + 260,000 – 248,000]

April purchases: 250,000 units [260,000 + 250,000 – 260,000]
May purchases: 230,000 units [250,000 + 230,000 – 250,000]
June purchases: 240,000 units [230,000 + 240,000 – 230,000]
July purchases: 225,000 units [240,000 + 225,000 – 240,000]

PART II.
SOLUTION:

a. June production: 12,800 units [12,400 + (2 x 12,600) - (2 x 12,400)]

b. July production: 13,800 units [12,600 + (2 x 13,200) - (2 x 12,600)]
c. June materials purchases: 71,500 pounds; $214,500

Used in production (5 lbs. x 12,800) 64,000 lbs.

Ending inventory (5 lbs. x 13,800 x 150%) 103,500
-------
Total 167,500
Less beginning inventory (5 lbs. x 12,800 x 150%) 96,000
-------
Purchases 71,500
Times cost per pound $3
-------
Equals dollar purchases $214,500
========

PART III.
SOLUTION:

a. Budgeted income: $110,000

Sales [(24,000 + 26,000) x $10] $500,000

Cost of sales (50,000 x $4) 200,000
-------
Gross profit $300,000
Commissions at 20% 100,000
-------
Contribution margin $200,000
Fixed costs (2 x 45,000) 90,000
-------
Income $110,000
========

b. Budgeted inventory: 25,000 units; $100,000 ($4 x 25,000)

c. Budgeted purchases: 25,000 units; $100,000

STRATEGIC COST MANAGMENT 5

Cost of sales 26,000 units $104,000
Ending inventory 25,000 100,000
------ --------
Total required 51,000 $204,000
Less beginning inventory 26,000 104,000
------ --------
Purchases 25,000 units x $4 $100,000
====== ========

PART IV.
SOLUTION:

a. March receipts: $264,000 [($240,000 x 60%) + ($300,000 x 40%)]

b. Receivables at end of March: $180,000 [$300,000 x (100% - 40%)]

c. Inventory at end of February: $420,000 ($300,000 x 70% x 2)

d. February purchases: $252,000 [($240,000 x 70%) + ($300,000 x 2 x 70%)

- ($240,000 x 2 x 70%)]

e. March payments: $282,400 [(252,000 x 20%) + ($290,000 x 80%)]

f. AP at end of February: $50,400 ($252,000 x 20%)

g. Cash at end of March: $2,600 ($25,000 + $264,000 - $282,400 - $24,000)

PART V.
Ans:

a.
November December
Sales .......................................................... $330,000 $300,000

Schedule of Expected Cash Collections

Accounts receivable .................................. $ 83,000
November sales ........................................ 280,500 $ 46,200
December sales ........................................ 255,000
Total cash collections ................................ $363,500 $301,200

STRATEGIC COST MANAGMENT 6

b.
November December
Cost of goods sold ..................................... $198,000 $180,000

Merchandise Purchases Budget

November sales......................................... $ 39,600
December sales......................................... 144,000 $ 36,000
January sales............................................. 153,600
Total purchases ......................................... $183,600 $189,600

Disbursements for merchandise ............... $196,000 $183,600

c.
November December
Cash receipts............................................. $363,500 $301,200
Cash disbursements:
Disbursements for merchandise ............ 196,000 183,600
Other monthly expenses ........................ 21,200 21,200
Total cash disbursements ...................... 217,200 204,800
Excess (deficiency) of cash available over
disbursements........................................ $146,300 $ 96,400

d.
November December
Sales .......................................................... $330,000 $300,000
Bad debt expense ..................................... 3,300 3,000
Cost of goods sold..................................... 198,000 180,000
Gross margin ............................................. 128,700 117,000
Other monthly expenses ........................... 21,200 21,200
Depreciation .............................................. 21,000 21,000
Net operating income ................................ $ 86,500 $ 74,800

e.
Statement of Financial Position
December 31
Assets:
Cash ........................................................................... $ 264,700
Accounts receivable (net of allowance for uncollectible
accounts)................................................................. 42,000
Inventory ..................................................................... 153,600
Property, plant and equipment (net of $636,000
accumulated depreciation) ..................................... 962,000

Total assets ................................................................ $1,422,300

Liabilities and Stockholders’ Equity:

Accounts payable ....................................................... $ 189,600

Common stock............................................................ 620,000
Retained earnings ...................................................... 612,700

Total liabilities and stockholders’ equity ..................... $1,422,300

STRATEGIC COST MANAGMENT 7

STRATEGIC COST MANAGMENT 8
STRATEGIC COST MANAGMENT 9
STRATEGIC COST MANAGMENT 10