Name: __________________________ Score: _________________

BUDGETING

1. A formal written statement of management’s plans for the future, packaged in financial terms, is a:
a. Responsibility report.
b. Performance report.
c. Cost of production report.
d. Budget.

2. Budgeting supports the planning process by encouraging all of the following activities except:
a. Requiring all organizational units to establish their goals for the coming period.
b. Increasing the motivation of managers and employees by providing agreed-upon expectations.
c. Improving overall decision making by considering all viewpoints, options, and cost control
programs.
d. Directing and coordinating operations during the period.

3. Which of the following statements is incorrect?

a. An imposed budget is the same as a participative budget.
b. Preparation of the budget would be the responsibility of each responsibility unit.
c. Top management’s support is necessary to promote budget participation.
d. The top management should review and approve each responsibility unit’s budget.

4. The budget approach that is more relevant when the continuance of an activity or operation must
be justified on the basis of its need or usefulness to the organization.
a. the incremental approach
b. the zero-based approach
c. the baseline approach
d. both a and b are true

5. A common starting point in the budgeting process is

a. expected future net income.
b. past performance.
c. to motivate the sales force.
d. a clean slate, with no expectations.

6. What is the proper preparation sequencing of the following budgets?

1. Budgeted Balance Sheet
2. Sales Budget
3. Selling and Administrative Budget
4. Budgeted Income Statement
a. 1, 2, 3, 4
b. 2, 3, 1, 4
c. 2, 3, 4, 1
d. 2, 4, 1, 3

7. Which of the following budgets provides the data for the preparation of the direct labor cost
budget?
a. Direct materials purchase budget.
b. Cash budget.
c. Sales budget.
d. Production budget.

8. In preparing a cash budget, which of the following is normally the starting point for projecting cash
requirements?
a. Fixed assets.
b. Sales.
c. Accounts receivable.
d. Inventories.

9. Calypso Co. has projected sales to be P600,000 in January, P750,000 in February, and P800,000 in
March. Calypso wants to have 50% of next month’s sales needs on hand at the end of a month. If
Calypso has an average gross profit of 40%, what are the February 28 purchases?
a. P465,000
b. P310,000
c. P775,000
d. P428,000

10. Montalban Company’s sales budget shows the following expected sales for the following year:

Quarter Units
First 120,000
Second 160,000
Third 90,000
Fourth 110,000

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 Total 480,000

The inventory at December 31 of the prior year was budgeted at 36,000 units. The quantity of
finished goods inventory at the end of each quarter is to equal 30% of the next quarter’s budgeted
sales of units.
How much should the production budget show for units to be produced during the first quarter?
a. 48,000
b. 96,000
c. 132,000
d. 144,000

11. If the required direct materials purchases are 8,000 pounds and the direct materials required for
production is three times the direct materials purchases, and the beginning direct materials are
three and a half times the direct materials purchases, what are the desired ending direct material
in pounds?
a. 20,000
b. 4,000
c. 12,000
d. 32,000

12. Minerva Company sells a single product. Budgeted sales for the year are anticipated to be
640,000 units. The estimated beginning and ending finished goods inventory are 108,000 and
90,000, respectively. A production of one unit requires the following materials:

Material LL 0.50 lb. @ P0.60

Material MM 1.00 lb. @ P1.70
Material NN 1.20 lb. @ P1.00

What are the respective peso amounts of each material to be used in production during the year?

Material LL Material MM Material NN

a. P181,200 P1,026,800 P724,800
b. P181,200 P1,026,800 P746,400
c. P186,600 P1,057,400 P746,400
d. P186,600 P1,057,400 P724,800

13. Silver Bowl Company manufactures a single product. It keeps its inventory of finished goods at
75% the coming month’s budgeted sales. It also keeps its inventory of raw materials at 50% of the
coming month’s budgeted production. Each unit of product requires two pounds of materials. The
production budget is, in units: May, 1,000; June, 1,200; July, 1,300; august, 1,600. Raw material
purchases in July would be
a. 1,525 pounds
b. 2,900 pounds
c. 2,550 pounds
d. 3,050 pounds

14. Strama Company prepares its budgets on annual basis. The following beginning and ending
inventory unit levels are planned for the fiscal year of June 1, 2006 through May 31, 2007.

June 1, 2006 May 31, 2007

Raw material* 40,000 50,000
Work-in-process 10,000 10,000
Finished goods 80,000 50,000

*Two (2) units of raw material are needed to produce each unit of finished product.
If 500,000 finished units were to be manufactured during the 2006-2007 fiscal year by Strama
Company, the units of raw material needed to be purchased would be
a. 1,000,000 units
b. 1,010,000 units
c. 1,020,000 units
d. 990,000 units

15. Namuco, Inc. uses flexible budgeting for cost control. During the month of September, Namuco,
Inc. produced 14,500 units of finished goods with indirect labor costs of P25,375. Its annual
master budget reflects an indirect labor costs, a variable cost, of P360,000 based on an annual
production of 200,000 units. In the preparation of performance analysis for the month of
September, how much flexible budget should be allowed for indirect labor costs?
a. P30,000
b. P29,167
c. P25,375
d. P26,100

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16. Mendrez Company has a collection schedule of 60% during the month of sales, 15% the following
month, and 15% subsequently. The total credit sales in the current month of September were
P80,000 and total collections in September were P57,000. What were the credit sales in July?
a. P90,000
b. P30,000
c. P45,000
d. P32,000

17. The Avelina Company has the following historical pattern on its credit sales.

70 percent collected in month of sale

15 percent collected in the first month after sale
10 percent collected in the second month after sale
4 percent collected in the third month after sale
2 percent uncollectible

The sales on open account have been budgeted for the last six months of 2007 are shown below:

July P 60,000
August 70,000
September 80,000
October 90,000
November 100,000
December 85,000

The estimated total cash collections during the fourth calendar quarter from sales made on open
account during the fourth calendar quarter would be
a. P172,500
b. P230,000
c. P265,400
d. P251,400

18. As of January 1, 20x7, the Liberal Sales Company had an account receivable of P500,000. The
sales for January, February, and March were as follows: P1,200,000, P1,400,000 and P1,500,000,
respectively. Of each month’s sales, 80% is on account. 60% of account sales is collected in the
month of sale, with remaining 40% collected in the following month.
What is the accounts receivable balance as of March 31, 20x7?
a. P720,000
b. P480,000
c. P587,200
d. P600,000

19. Albania Company expects its June sales to be P300,000, which is 25% higher than its May sales.
Purchases were P200,000 in May and are expected to be P240,000 in June. All sales are on credit
and are collected as follows: 80% in the month of the sale and 20% in the following month. All
payments in the month of sales are given 2% discount. Sixty percent of purchases are paid in the
month of purchase to take advantage of purchase term of 1/10, n/40. The remaining amount is
paid in the following month. The beginning cash balance on June 1 is P20,000. The ending cash
balance on June 30 would be:
a. P64,160
b. P73,000
c. P80,640
d. P85,440

20. Albatross Company started its commercial operations on September 30 of the current year.
Projected manufacturing costs for the first three months of operations are P1,568,000, P1,952,000,
and P2,176,000, respectively. Depreciation, insurance, and property taxes represent P288,000 of
the estimated manufacturing costs. Insurance was paid on September 30, and property taxes will
be paid in July next year. Seventy-five percent of the remainder of the manufacturing costs are
expected to be paid in the month in which they are incurred, with the balance to be paid in the
following month. The cash payments for manufacturing costs in the month of November are:
a. P1,568,000
b. P1,952,000
c. P1,664,000
d. P1,856,000

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