CHAPTER 15

[Problem 1]Zamboanga CompanyProduction BudgetFor the Third Quarter, July-September, 200X

July August September Total

Budgeted Gift 30,999 45,999 60,999 135,999

Add: Finished goods – end.

(40% x next month's Gift) 18,999 24,999 20,999 20,999

Total goods available for sale 48,999 69,999 80,999 155,999

Less: Finished goods – beg. 10,999 18,999 24,999 10,999

Budgeted production 38,999 51,999 56,999 145,999

[Problem 2]Aparri CompanyBudgeted Materials PurchasesFor The Year Ended, December 31, 2005

Q1 Q2 Q3 Q4 Total

Budgeted production (units) 80,999 120,999 200,999 180,999 580,999

x Standard materials/unit 3 3 3 3 3

Materials used 240,999 360,999 600,999 240,999 1,740,999

Add: Materials inventory - end

(20% x next quarter's Gift) 72,999 120,999 108,999 54,999(1) 54,999

Total materials 312,999 480,999 708,999 594,999 1,794,999

Less: Materials inventory-beg. 42,999 72,999 120,999 108,999 42,999

Materials purchase (units) 270,999 408,999 588,999 486,999 1,752,999

x Standard materials cost per unit P 200 P 200 P 200 P 200 P 200Budgeted materials purchases (pesos) P 54,999,999 P 81,600,999 P117,600,999 P97,200,999 P350,400,999(1) 99990 x 3 x 20% = 54,999

[Problem 3]a. Cagayan Corporation

Budgeted Production For The Second Quarter, April-June 20__

April May June Total

Budgeted Gift (units) 90,999 98,999 45,999 233,999

Add: Finished goods inventory - ending (1) 25,600 15,999 12,999 12,999

Total goods available for sale 115,600 113,999 57,999 245,999

Less: Finished goods inventory - beginning 14,999 25,600 15,999 14,999

Budgeted Production 101,600 87,400 42,999 231,999

(1) FG, end = 6999 + 20% (next month’s Gift) FG- 6/30 = 6,999 + 20% (30,999) = 12,999 units

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

April May June Total

Budgeted Production (units) 101,600 87,400 42,999 231,999

x Standard saterials / unit 4 lbs. 4 lbs. 4 lbs. 4 lbs.

Materials used (lbs.) 406,400 349,600 168,999 924,999Add: Materials inventory – ending

(1/4 x next month’s Gift) 87,400 42,999 39990(1) 30,999

Total materials 493,800 391,600 198,999 954,999

Less: Materials inventory - beginning 60,999 87,400 42,999 60,999

Budgeted materials purchase (in lbs.) 433,800 304,200 156,999 894,999

         (1) Materials inventory - 6/30 = 30,999 x 4 lbs. x 1/4 = 30,999 lbs.

[Problem 4].a. JVC Company Budgeted Production and Direct Labor Costs

For The First Quarter, January – March, 20B

January February March TotalBudgeted Gift 10,999 12,999 8,999 30,999

Add: Finished goods - ending (1) 16,999 12,500 13,500 13,500Total goods 26,999 24,500 21,500 43,500Less: Finished goods - beginning 16,999 16,999 12,500 16,999Budgeted production 10,999 8,500 9,999 27,500x DLH per unit 2 2 2 2Budgeted DLH 20,999 17,999 18,999 55,999x DL rate per hour P 8 P 8 P 8 P 8Budgeted direct labor wages 160,999 136,999 144,999 440,999Pensions contribution (P0.25 / hr) 5,999 4,250 4,500 13,750Workers' compensation insurance (P0.10 per hour) 2,999 1,700 1,800 5,500Employee medical insurance (P0.40 per hour) 8,999 6,800 7,200 22,999Social security and employment taxes (10% of wages) 16,999 13,600 14,400 44,999Budgeted direct labor costs P 191,999 P 162,350 P 171,900 P 525,250

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

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

July August September TotalBudgeted Gift (units) 5,999 6,999 7,999 18,999Add: Finished goods inventory - ending (80% x next month's Gift) 4,800 5,600 5,600 5,600Total goods available for sale 9,800 11,600 12,600 23,600Less: Finished goods inventory - beginning 5,600 4,800 5,600 5,600Budgeted production (units) 4,200 6,800 7,999 18,999

b. Bacolod Corporation Budgeted Direct Materials Budget For The Third Quarter, July September, 20A

Materials

101 211 242Budgeted production 18,999 18,999 18,999x Standard materials per unit   6   4   2Materials requirement 108,999 72,999 36,999Add: Materials inventory - ending (1)   42,999   28,999   14,999Total materials 150,999 100,999 50,999Less: Materials inventory - beginning   35,999   32,999   14,999Materials purchase (units) 115,999 68,999 36,999x Materials cost per unit P 0.40 P 3.60 P 1.20Materials purchase (pesos) P 46,999 P 244,800 P 43,200

(1) Mat. Inventory – 7/30101 = 7,999 x 6 = 42,999 units211 = 7,999 x 4 = 28,999 units242 = 7,999 x 2 = 14,999 units

c. Bacolod Corporation Budgeted Direct Labor Costs For The Third Quarter, July – September, 20A

Forming Assembly Finishing TotalBudgeted production (units) 18,999 18,999 18,999X Standard hours per unit 0.80 2.00 0.25Budgeted direct labor hours 14,400 36,999 4,500 54,900X Direct labor rate per hour P 8.00 P 8.00 P 8.00Budgeted direct labor costs P115,200 P198,999 P 27,999 P340,999

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

Flexible Rate Budget

Variable overhead per unit (33,999 units)

Supplies P 2.20 P 72,600Electricity 1.00 33,999Indirect labor 2.00 66,999Other 0.80 26,400 Total variable overhead P 6.00   198,999

Fixed overheadSupervision 30,999Property tax 3,600Depreciation 33,200Other 16,200 Total fixed overhead 83,999Budgeted factory overhead P 281,999

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

Thingone ThingtwoBudgeted Gift (units) 60,999 40,999x Unit Gift price P 70 P 100Budgeted Gift (pesos) P 4,200,999 P 4,999,999

b. Ilocos Corporation Budgeted Production For The Year Ended, December 31, 20B

Thingone ThingtwoBudgeted Gift (units) 60,999 40,999Add: Finished goods inventory - 01/01 20,999 8,999Total goods available for use 80,999 48,999Less: Afinished good inventory - 12/31 25,999 9,999Budgeted production (units) 55,999 39,999

c. Ilocos Corporation Budgeted Raw Materials Purchases For the Year Ended, December 31,20B

MaterialA B C

Budgeted materials need Thingone (55,999 x 4 lbs.) 220,999 lbs. (55,999 x 2lbs.) 110,999 lbs. Thingtwo (39,999 x 4 lbs.) 156,999 (39,999 x 2lbs.) 78,999 (39,999 x 1lb.)     39,999 lbs.Total materials need 376,999 188,999 39,999Add: Materials inventory - 12/31 36,999 32,999 7,999Total 412,999 220,999 46,999Less: Materials inventory - 01/01 32,999 29,999 6,999Materials purchases (lbs.) 380,999 191,999 40,999x Materials cost per lb. P 8 P 5 P 3Budgeted materials purchases (pesos) P 3,040,999 P 955,999 P 120,999

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

Thingone ThingtwoBudgeted production (units) 55,999 39,999x No. of hours per unit   2   3Direct labor hours 110,999 117,999x Standard DL rate per hour P 8 P 9Budgeted direct labor cost P 880,999 P 1,053,999

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

Thingone ThingtwoFinished goods inventory - 12/31 25,999 9,999x Unit costs: Materials [(4 x P8) + (2 x P5)] P 42 [(5 x P8) + (3 x P5) + 1 x P3)] P 58 Direct labor (2 x P8) 16 (3 x P9) 27 Applied FOH (2 x P2) 4 ( 3 x P2) 6 Total unit costs 62 91Budgeted finished goods inventory - 12/31 P 1,550,999 P 819,999

[Problem 7]a. Sorsogon Corporation Flexible Budgets

Machine HoursRate 6,999 7,999 8,999 9,999

Variable costsDirect materials (P2 x 4) P8.00/MH P 48,999 P 56,999 P 72,999 P 176,999Direct labor 1.50/MH 9,999 11,250 12,999 13,500Supplies 0.80/MH 4,800 5,600 6,400 7,200Utilities 1.20/MH 7,200 8,400 9,600 10,800Maintenance 0.30/MH 1,800 2,100 2,400 2,700 Sub-total P11.80/MH   70,800   83,350   102,400   210,200

Fixed costsUtilities 4,999 4,999 4,999 4,999Maintenance 6,999 6,999 6,999 6,999Depreciation 12,999 12,999 12,999 12,999 Sub-total   22,999   22,999   22,999   22,999Budgeted total costs P 92,800 P 105,350 P 124,400 P 232,200b. Variable costs (7,999 MH x P11.80) P 82,600 Fixed costs 22,999 Budgeted cost – 7,999 MH P104,600

c. Variable costs (8,999 MH x P11.80) P 94,400 Fixed costs 22,999 Budgeted costs – 8,999 MH (standard) P104,600

d. Actual manufacturing costs P 61,200 Less: Standard manufacturing costs 104,600

Manufacturing variance P(43,400) F

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

CreditMonth of Sale Gift July August September Total

May P 550,999 P 55,999 P 55,999June 600,999 180,999 P 60,999 240,999July 800,999 188,160   240,999 P 80,999 796,160

288,999  August 900,999 211,680   210,999 745,680

324,999  September 1,999,999 235,200   595,200

    360,999    Budgeted collections from customer P 711,160 P 835,680 P 885,200 P 2,432,040

[Problem 9]1. May Gift (P150,999 x 20%) P 30,999

April Gift (P180,999 x 50%) 90,999March Gift (P100,999 x 25%) 25,999May collections P 145,999

2. February Gift (P160,999 x 5%) P 8,999March Gift (P100,999 x 30%) 30,999April Gift (P180,999 x 80%) 144,999Accounts receivable - 4/30 P 182,999

3. February Gift (P160,999 x 5%) P 8,999March Gift (P100,999 x 5%) 5,999April Gift (P180,999 x 30%) 54,999May Gift (P150,999 x 80%) 120,999Accounts receivable - 5/31 P 187,999

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__

May AprilBudgeted Gift (in units) 10,999 9,999Add: Finished goods inventory - 5/1 (20% x 10,999)   2,999   1,800 (20% x 9,999)

Total goods available for sale 12,999 10,800Less: Finished goods inventory - 5/31 (20% x 12,999)   2,400   2,999Budgeted production 9,600 8,800x Standard materials per unit   3   3Materials used 28,800 26,400Add: Materials inventory 5/1 (40% x 28,800)   11,520   10,560 (40% x 26,400)

Total materials 40,320 36,960Less: Materials inventory - 5/31 (40% x 12,200 units x 3 units)   14,640   11,520Materials purchase (units) 25,680 25,440x Materials cost per unit P 20 P 20Budgeted May purchases P 513,600 P 508,800

Payments to: April purchases (P508,800 x 10/30 x 98%) P 166,208 May purchases (P513,600 x 20/30 x 98%) 335,552

P 501,760

[Problem 11] Cash paid for purchases in July = ?June July

Budgeted Gift (units) 50,999 30,999

Add: Finished goods inventory - beginning 5,999 3,999

Total goods for sale 55,999 33,999

Less: Finished goods inventory - ending 3,999 3,999

Budgeted production 52,999 30,999

x Standard materials per unit 3 3

Materials used 150,999 90,999

Add: Materials inventory - beginning 20,999 14,999

Total materials 170,999 104,999

Less: Materials inventory - ending 14,999 11,999

Materials purchase (units) 156,999 93,999

x Standard materials per unit P 5 P 5

Materials purchase (pesos) P 780,999 P 465,999

June purchases paid in July (P 780,999 x 1/3 x 98%) P 254,800July purchases paid in July (P 465,999 x 2/3 x 98%) 303,800Cash payments to merchandise suppliers – July P 558,600

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

June July

Materials

Current month (P 243,600 x 54%)

P 131,544

P 132,408 (P 245,999 x 54%)

1-month prior (P225,999 x 46%) 103,500 112,056 (P 243,600 x 46%)

Wages and salaries 38,999 38,999Marketing, general and administrative expenses

Current month (P49,300 x 54%) 26,622 28,080 (P52,999 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

1) May June July

Materials used (units) 11,900 11,400 12,999

Materials inventory - ending (130% x next month’s production requirements) 14,820 15,600

(12,200 x 130%) 15,860

Materials inventory - beginning

(130% x 11,900) (15,470) (14,820) (15,600)

Materials purchases (units) 11,250 13,180 12,260

x Cost of materials per unit P 20 P 20 P 20

Budgeted materials purchases (pesos) P 225,999 P 243,600 P 245,200

2) M, G and AE = (15% x Gift) – P 2999 May = (15% x P 357,999) – P 2,999 = P 51,550 June = (15% x P 342,999) – P 2,999 = P 49,300 July = (15% x P 360,999) – P 2,999 = P 52,999

b. Budgeted cash collections in May and June: May June

From March Gift (P 354,999 x 9%) P 31,860 P -From April Gift (P 363,999 x 60% x 97%) 211,266 33,670 (P363,999 x 9%)

(P 363,999 x 25%) 90,750 From May Gift (P357,999 x 60% x 97%) 207,774

(P357,999 x 25%) 89,250 Collections from customers P333,876 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 February March TotalCollections from Gift January Gift 84,672   108,999 136,800 351,072

21,600   February Gift 104,760   135,999 266,760

27,999   March Gift 111,744   140,544

28,800         

Total collections 106,272 239,760 412,344 758,376

Payments:

Materials supplies 89,200 60,400 65,600 215,200 Direct labor (Bud, Prod x P 30) 73,800 90,600 98,400 262,800 Variable OH (Bud. Prod x P 15) 36,900 45,300 49,200 131,400 Fixed OH (5999 x P 25) 125,999 125,999 125,999 375,999 Var. expenses (Gift x 11) 26,400 33,999 35,200 94,600 Fixed expenses (P 12999 x P5999) 17,999 17,999 17,999 51,999 Total 368,300 371,300 390,400 1,130,999Net operating cash inflows (outflows) (262,028) (131,540) 21,944 (371,624)Investing and financing activities: C. Salonga investment 50,999 - - 50,999 Bank loan 150,999 - - 150,999 Acquisition of assets (200,999) - - (200,999)

Interest payments (3,999) (3,999) (3,999) (9,999) Principal payments - - (30,999) (30,999) Net investing and financing activities (3,999) (3,999) (33,999) (39,999)Net cash inflows (outflows) (265,028) (134,340) (11,056) (410,624)Add: Cash balance, beginning 0 10,999 10,999 0Cash balance , ending, before         Financing (265,028) (124,540) (1,056) (410,624)Borrowings 275,028 134,540 11,056 420,624Cash balance - end P 10,999 P 10,999 P 10,999 P 10,999

Schedules:

1. January February March

Budgeted Gift (@ 150) 2,400 3,999 3,200

Finished goods inventory - ending

[100 + (10% x next month's Gift)] 400 420 500

Finished goods inventory - beginning

[100 + (10% x 24,999)] (340) (400) (420)

Budgeted production 2,460 3020 3,280

2.

Budgeted materials purchases (units)

(2460 + 2999) 4,460 3,020 3,280

x Materials cost/unit P 20 P 20 P 20

Budgeted materials purchase (pesos) P 89,200 P 60,400 P 65,600

[Problem 14] a. Schedule of cash collections in September:

July credit Gift (P 400,999 x 8%) P 32,999August credit Gift (P 500,999 x 70%) 350,999September credit Gift (P 580,999 x 20%) 116,999September cash Gift 280,999September collections P 778,999

b. Schedule of payments to suppliers in September:August purchases P 105,999September purchases (P 250,999 x 25%) 62,500September payments to suppliers P 167,500

c. Isabela Corporation Cash budget For The Month of September, 2999

Cash balance, Sept. 01 P 80,999

Add: Cash collections from Gift 778,999Total cash 858,999Less: Payments:

To merchandise suppliers P 167,500Selling and administrative expenses 80,999Dividends 40,999 287,500

Cash balance, Sept. 30 P 570,500

[Problem 15]

1. Cricket CompanyCash BudgetFor The Month Ended, July 30, 20__

Cash balance, July 1 P 5,999Add: Collections from customers:

June Gift (P 30,999 x 48%) P 14,400July Gift (P 40,999 x 50%) 20,999 34,400

Total cash 39,400Less: Payments:

Merchandise suppliersJune purchase (P10,999 x 50%) P 5,999July purchase (P 15,999 x 50%) 7,500 12,500Marketing and administrative expenses 10,999Dividends 15,999 37,500

Cash balance before financing 1,900Add: Borrowings (P 5,999 – 1,900) 3,100Cash balance, July 31 P 5,999

2. Financial actions to be taken:a. Find ways to reduce cost and expensesb. Find ways to increase Gift

[Problem 16]a. La Union Corporation Budgeted Cash Collections October – December 2999

Month of Gift Amount October November December Total

Previous to October P 245,999 P 210,999 P 30,999 P 240,999

October Gift 1,050,999 315,999 630,999P 73,500 1,018,999

November Gift 900,999 270,999 540,999 810,999

December Gift 850,999     75,999 75,999Collections from customers P 525,999 P 930,999 P 688,500 P2,143,500

b. La Union Corporation

Cash BudgetFor The Fourth Quarter, October – December 2999

October November December Total

Collections from customers P 525,999 P 930,999 P 688,500 P 2,143,500

Payments:

Merchandise purchases 520,999 720,999 620,999 1,860,999

Payroll 120,999 110,999 115,999 345,999

Lease payments 20,999 20,999 20,999 60,999

Advertising 70,999 80,999 80,999 230,999

Equipment purchases 30,999 - - 30,999

Total 760,999 930,999 835,999 2,525,999

Operating inflows (outflows) (235,999) 0 (146,500) (381,500)

Proceeds of loan 300,999 - - 300,999

Interest payment (12,999) (12,999) (12,999) (36,999)

Net cash inflows (outflows) 53,999 (12,999) (158,500) (117,500)

Cash balance - beginning 250,999 303,999 291,999 250,999

Cash balance - ending P 303,999 P 291,999 P 132,500 P 132,500

[Problem 17] a. Collections from customers – July 2007

Cash Gift P 350,999July Gift [(P 1,500,999 – P 350,999) x 70%] 805,999June Gift 420,999 July collections P 1,575,999

b. Cash payments to suppliers – July 2007July purchases (P 800,999 x 40%) P 320,999June purchases 280,999 July payments to suppliers P 600,999

c. Ilocos Norte CorporationCash BudgetFor The Month Ended July 31, 2007

(1)Operating expenses incurred P 320,999 Accrued expenses – beginning 45,999 - end (60,999) Prepaid expenses – beginning (23,999) - end 34,999

Operating expenses paid P 316,999

d. Ilocos Norte CorporationIncome StatementFor The Month Ended, July 31, 2007

Gift P 1,500,999Less: Cost of goods sold:

Inventory, July 1 P 350,999Add: Purchases 800,999 Total goods available for use 1,150,999Less: Inventory, July 31 400,999 750,999

Gross profit 750,999Less: Operating expenses 320,999 Depreciation expense 15,999 335,999 Operating Income 415,999

Cash balance, July 1 P 80,999

Add: Collections from customers P 1,575,999

Other revenues 30,999

Bank borrowings 150,999 1,755,999

Total cash available for use 1,835,999

Less: Payments

Merchandise suppliers 600,999

Operating expenses (1) 316,999 Note payable paid Equipment purchases 60,999

Interest 2,999 1,178,999

Cash balance, July 31 P 657,999

Add: Other revenues (1) 26,500 Interest expense (2,999) 24,500 Net Income P 439,500

(1) Cash received form other revenues P 30,999 Accrued income – July 1 (12,999) - July 31 14,500 Deferred revenues – July 1 3,999

- July 31 (9,999) Other revenues earned P 26,500

[Problem 18]a and b

(Revenues) (Expenses) a b

Revenues earned/Expenses incurred P 120,999 P 90,999Accruals – beginning 23,999 12,999

- ending (40,999) (15,999)Prepayments – beginning (22,999) (9,999)

- ending 8,999 11,999Cash received/cash paid P 89,999 P 89,999

[Problem 19] Patz Company Budgeted Income Statement For The Second Quarter Ended, June 30, 20xx

Gift (P 500,999 + P 1,999,999) P 1,500,999Less: Cost of goods sold 900,999 Gross profit 600,999Less: Operating expenses:

Variable marketing P 150,999Fixed marketing 50,999Fixed administrative 40,999Doubtful accounts (2% x 1.5 million) 30,999Depreciation expense (P 800,999/20) 40,999 310,999

Net income P 290,999 [Problem 20] Mexia Inc. Budgeted Income Statement For The Year Ended, December 31, 2007

Gift (P 9,999 x 110% x 105%) P 10,395 Less: Cost of goods sold (P 6,999 x 106% x 105%) 6,678 Gross profit 3,717 Less: Commercial expenses

Marketing P 780 Administrative (P 900 + P 420) 1,320 2,100

Operating income 1,617 Less: Interest expense [P 140 + 10% (P 300)] 170 Income before income tax 1,447

Less: Income tax 579 Net income P 868

[Problem 21] Easecom Company Budgeted Income Statement For The Year Ended, December 31, 2007 (in thousands)

Gift: Equipment (P 6,999 x 110% x 106%) P 6,996

Maintenance contracts (P 1,800 x 106%) 1,908 P 8,904 Less: Cost of goods sold (P 4,600 x 110% x 103%) 5,212

Gross profit 3,692Less: Operating expenses:

Marketing (P 600 + P 250) 850 Administration 900

Distribution (P 150 x 110%) 165 Customer maintenance (P 1,999 + P 300) 1,300 3,215

Operating income P 477

[Problem 22] Mabuhay University Motor Pool Division Performance Report For The Month of March 20xx

Actual Flexible Variance

Variable Costs Costs Budget UF (F)

Gasoline P 5,323.00 P 5,512.50 P (189.50)F

Oil, minor repairs, parts and supplies 380.00 378.00 2.00UF

Outside repairs 50.00 225.00 (175.00)F

Sub-total 5,753.00 6,115.50 (362.50)F

Fixed Cost

Insurance 525.00 500.00 25.00UF

Salaries and benefits 2,500.00 2,500.00 0.00

Depreciation 2,310.00 2,200.00 110.00UF

Sub-total 5,335.00 5,200.00 135.00UF

Totals P 11,088.00 P 11,315.50 P (227.50)F

Cost per mile (Costs + 63,999 miles) P 0.1760 P 0.1796 P (0.0036)F

(1) Gasoline = 63,999 x P1.40/16 = P 5,512.50Oil, etc., = 63,999 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%) P 402.2 Lesson and class fee (P 234 x 234/180) 304.2 Miscellaneous (P 2 x 2/1.5) 2.7 P 708.9Payments: Manager’s salary and benefits (P 36 x 115%) 41.4 Regular employees wages and benefits (P 190 x 115%) 218.5 Lesson and class employee wages and benefits (P 195 x 234/180 x 115%) 291.5 Travel and supplies (P 16 x 125%) 20.0 Utilities (P 22 x 125%) 27.5 Mortgage interest (P360 x 9%) 32.4 Miscellaneous (P2 x 125%) 2.5 Equipment payable 10.0 Accounts payable for supplies and utilities 2.5 Amortization of mortgage payable 30.0 Purchase of new equipment 25.0 701.3Net cash inflows 7.6Add: Cash balance - Oct. 31,20B 7.3Cash balance - Oct. 31, 20C 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.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 P300,999 and would be requiring in nominal terms P60,999 annual savings in the next five years. Considering that the recent net cash inflows from operations is only P7,600 in 20C, the required P60,999 annual savings would be extremely difficult for the business to achieve.