CHAPTER 6SHORT-TERM BUDGETING

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

July August September TotalBudgeted sales 30,000 45,000 60,000 135,000Add: Finished goods – end. (40% x next month's sales) 18,000 24,000 20,000 20,000Total goods available for sale 48,000 69,000 80,000 155,000Less: Finished goods – beg. 10,000 18,000 24,000 10,000Budgeted production 38,000 51,000 56,000 145,000

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

Q1 Q2 Q3 Q4 TotalBudgeted production (units) 80,000 120,000 200,000 180,000 580,000x Standard materials/unit 3 3 3 3 3Materials used 240,000 360,000 600,000 240,000 1,740,000Add: Materials inventory - end

(20% x next quarter's sales) 72,000 120,000 108,000 54,000(1) 54,000Total materials 312,000 480,000 708,000 594,000 1,794,000Less: Materials inventory-beg. 42,000 72,000 120,000 108,000 42,000Materials purchase (units) 270,000 408,000 588,000 486,000 1,752,000x Standard materials cost per unit P 200 P 200 P 200 P 200 P 200Budgeted materials purchases (pesos) P 54,000,000 P 81,600,000 P117,600,000 P97,200,000 P350,400,000(1) 90000 x 3 x 20% = 54,000

[Problem 3]

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

April May June TotalBudgeted sales (units) 90,000 98,000 45,000 233,000

Add: Finished goods inventory - ending (1) 25,600 15,000 12,000 12,000Total goods available for sale 115,600 113,000 57,000 245,000Less: Finished goods inventory - beginning 14,000 25,600 15,000 14,000Budgeted Production 101,600 87,400 42,000 231,000

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

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

April May June TotalBudgeted Production (units) 101,600 87,400 42,000 231,000x Standard materials / unit 4 lbs. 4 lbs. 4 lbs. 4 lbs.Materials used (lbs.) 406,400 349,600 168,000 924,000Add: Materials inventory – ending (1/4 x next month’s sales) 87,400 42,000 30000(1) 30,000Total materials 493,800 391,600 198,000 954,000Less: Materials inventory - beginning 60,000 87,400 42,000 60,000Budgeted materials purchase (in lbs.) 433,800 304,200 156,000 894,000         (1) Materials inventory - 6/30 = 30,000 x 4 lbs. x 1/4 = 30,000 lbs.

[Problem 4].a. JVC Company

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

January February March TotalBudgeted sales 10,000 12,000 8,000 30,000Add: Finished goods - ending (1) 16,000 12,500 13,500 13,500Total goods 26,000 24,500 21,500 43,500Less: Finished goods - beginning 16,000 16,000 12,500 16,000Budgeted production 10,000 8,500 9,000 27,500x DLH per unit 2 2 2 2Budgeted DLH 20,000 17,000 18,000 55,000x DL rate per hour P 8 P 8 P 8 P 8Budgeted direct labor wages 160,000 136,000 144,000 440,000Pensions contribution (P0.25 / hr) 5,000 4,250 4,500 13,750Workers' compensation insurance (P0.10 per hour) 2,000 1,700 1,800 5,500Employee medical insurance (P0.40 per hour) 8,000 6,800 7,200 22,000Social security and employment taxes (10% of wages) 16,000 13,600 14,400 44,000Budgeted direct labor costs P 191,000 P 162,350 P 171,900 P 525,250

(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

July August September TotalBudgeted sales (units) 5,000 6,000 7,000 18,000Add: Finished goods inventory - ending (80% x next month's sales) 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 7,000 18,000

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

Materials101 211 242

Budgeted production 18,000 18,000 18,000x Standard materials per unit   6   4   2Materials requirement 108,000 72,000 36,000Add: Materials inventory - ending (1)   42,000   28,000   14,000Total materials 150,000 100,000 50,000Less: Materials inventory - beginning   35,000   32,000   14,000Materials purchase (units) 115,000 68,000 36,000x Materials cost per unit P 0.40 P 3.60 P 1.20Materials purchase (pesos) P 46,000 P 244,800 P 43,200

(1) Mat. Inventory – 7/30101 = 7,000 x 6 = 42,000 units211 = 7,000 x 4 = 28,000 units242 = 7,000 x 2 = 14,000 units

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

Forming Assembly Finishing TotalBudgeted production (units) 18,000 18,000 18,000X Standard hours per unit 0.80 2.00 0.25Budgeted direct labor hours 14,400 36,000 4,500 54,900X Direct labor rate per hour P 8.00 P 8.00 P 8.00Budgeted direct labor costs P115,200 P198,000 P 27,000 P340,000

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

Flexible Rate Budget

Variable overhead per unit (33,000 units)Supplies P 2.20 P 72,600Electricity 1.00 33,000Indirect labor 2.00 66,000Other 0.80 26,400 Total variable overhead P 6.00   198,000

Fixed overheadSupervision 30,000Property tax 3,600Depreciation 33,200Other 16,200 Total fixed overhead 83,000

Budgeted factory overhead P 281,000

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

Thingone ThingtwoBudgeted sales (units) 60,000 40,000x Unit sales price P 70 P 100Budgeted sales (pesos) P 4,200,000 P 4,000,000

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

Thingone ThingtwoBudgeted sales (units) 60,000 40,000Add: Finished goods inventory - 01/01 20,000 8,000Total goods available for use 80,000 48,000Less: Afinished good inventory - 12/31 25,000 9,000Budgeted production (units) 55,000 39,000

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

MaterialA B C

Budgeted materials need Thingone (55,000 x 4 lbs.) 220,000 lbs. (55,000 x 2lbs.) 110,000 lbs. Thingtwo (39,000 x 4 lbs.) 156,000 (39,000 x 2lbs.) 78,000 (39,000 x 1lb.)     39,000 lbs.Total materials need 376,000 188,000 39,000Add: Materials inventory - 12/31 36,000 32,000 7,000Total 412,000 220,000 46,000Less: Materials inventory - 01/01 32,000 29,000 6,000Materials purchases (lbs.) 380,000 191,000 40,000x Materials cost per lb. P 8 P 5 P 3Budgeted materials purchases (pesos) P 3,040,000 P 955,000 P 120,000

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

Thingone ThingtwoBudgeted production (units) 55,000 39,000x No. of hours per unit   2   3Direct labor hours 110,000 117,000x Standard DL rate per hour P 8 P 9Budgeted direct labor cost P 880,000 P 1,053,000

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

Thingone ThingtwoFinished goods inventory - 12/31 25,000 9,000x 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 1,550,000 P 819,000

[Problem 7]a. Sorsogon Corporation Flexible Budgets

Machine HoursRate 6,000 7,000 8,000 9,000

Variable costsDirect materials (P2 x 4) P8.00/MH P 48,000 P 56,000 P 72,000 P 176,000Direct labor 1.50/MH 9,000 11,250 12,000 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 4,000 4,000 4,000 4,000Maintenance 6,000 6,000 6,000 6,000Depreciation 12,000 12,000 12,000 12,000 Sub-total   22,000   22,000   22,000   22,000Budgeted total costs P 92,800 P 105,350 P 124,400 P 232,200b. Variable costs (7,000 MH x P11.80) P 82,600 Fixed costs 22,000 Budgeted cost – 7,000 MH P104,600

c. Variable costs (8,000 MH x P11.80) P 94,400 Fixed costs 22,000 Budgeted costs – 8,000 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 Sales July August September Total

May P 550,000 P 55,000 P 55,000June 600,000 180,000 P 60,000 240,000July 800,000 188,160   240,000 P 80,000 796,160

288,000  August 900,000 211,680   210,000 745,680

324,000  September 1,000,000 235,200   595,200

    360,000    Budgeted collections from customer P 711,160 P 835,680 P 885,200 P 2,432,040

[Problem 9]1. May sales (P150,000 x 20%) P 30,000

April sales (P180,000 x 50%) 90,000March sales (P100,000 x 25%) 25,000May collections P 145,000

2. February sales (P160,000 x 5%) P 8,000March sales (P100,000 x 30%) 30,000April sales (P180,000 x 80%) 144,000Accounts receivable - 4/30 P 182,000

3. February sales (P160,000 x 5%) P 8,000March sales (P100,000 x 5%) 5,000April sales (P180,000 x 30%) 54,000May sales (P150,000 x 80%) 120,000Accounts 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__

May AprilBudgeted sales (in units) 10,000 9,000Add: Finished goods inventory - 5/1 (20% x 10,000)   2,000   1,800 (20% x 9,000)Total goods available for sale 12,000 10,800Less: Finished goods inventory - 5/31 (20% x 12,000)   2,400   2,000Budgeted 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 sales (units) 50,000 30,000Add: Finished goods inventory - beginning 5,000 3,000Total goods for sale 55,000 33,000Less: Finished goods inventory - ending 3,000 3,000Budgeted production 52,000 30,000x Standard materials per unit 3 3Materials used 150,000 90,000

Add: Materials inventory - beginning 20,000 14,000Total materials 170,000 104,000Less: Materials inventory - ending 14,000 11,000Materials purchase (units) 156,000 93,000x Standard materials per unit P 5 P 5Materials purchase (pesos) P 780,000 P 465,000

June purchases paid in July (P 780,000 x 1/3 x 98%) P 254,800July purchases paid in July (P 465,000 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 JulyMaterials

Current month (P 243,600 x 54%) P 131,544

P 132,408 (P 245,000 x 54%)

1-month prior (P225,000 x 46%) 103,500 112,056 (P 243,600 x 46%)

Wages and salaries 38,000 38,000Marketing, general and administrative expenses 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

1) May June July

Materials used (units) 11,900 11,400 12,000Materials inventory - ending (130% x next month’s production requirements) 14,820 15,600 (12,200 x 130%) 15,860Materials 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 20Budgeted materials purchases (pesos) P 225,000 P 243,600 P 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: May June

From March sales (P 354,000 x 9%) P 31,860 P -From April sales (P 363,000 x 60% x 97%) 211,266 33,670 (P363,000 x 9%)

(P 363,000 x 25%) 90,750 From May sales (P357,000 x 60% x 97%) 207,774

(P357,000 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 sales January sales 84,672   108,000 136,800 351,072

21,600   February sales 104,760   135,000 266,760

27,000   March sales 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 (5000 x P 25) 125,000 125,000 125,000 375,000 Var. expenses (Sales x 11) 26,400 33,000 35,200 94,600 Fixed expenses (P 12000 x P5000) 17,000 17,000 17,000 51,000 Total 368,300 371,300 390,400 1,130,000Net operating cash inflows (outflows) (262,028) (131,540) 21,944 (371,624)Investing and financing activities: C. Salonga investment 50,000 - - 50,000 Bank loan 150,000 - - 150,000

Acquisition of assets (200,000) - - (200,000) Interest payments (3,000) (3,000) (3,000) (9,000) Principal payments - - (30,000) (30,000) Net investing and financing activities (3,000) (3,000) (33,000) (39,000)Net cash inflows (outflows) (265,028) (134,340) (11,056) (410,624)Add: Cash balance, beginning 0 10,000 10,000 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 10,000 P 10,000 P 10,000 P 10,000

Schedules:1. January February MarchBudgeted sales (@ 150) 2,400 3,000 3,200Finished goods inventory - ending [100 + (10% x next month's sales)] 400 420 500Finished goods inventory - beginning [100 + (10% x 24,000)] (340) (400) (420)Budgeted production 2,460 3020 3,280

2.Budgeted materials purchases (units) (2460 + 2000) 4,460 3,020 3,280x Materials cost/unit P 20 P 20 P 20Budgeted materials purchase (pesos) P 89,200 P 60,400 P 65,600

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

July credit sales (P 400,000 x 8%) P 32,000August credit sales (P 500,000 x 70%) 350,000September credit sales (P 580,000 x 20%) 116,000September cash sales 280,000September collections P 778,000

b. Schedule of payments to suppliers in September:August purchases P 105,000September purchases (P 250,000 x 25%) 62,500September payments to suppliers P 167,500

c. Isabela Corporation Cash budget For The Month of September, 2000

Cash balance, Sept. 01 P 80,000Add: Cash collections from sales 778,000Total cash 858,000Less: Payments:

To merchandise suppliers P 167,500Selling and administrative expenses 80,000Dividends 40,000 287,500

Cash balance, Sept. 30 P 570,500

[Problem 15]

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

Cash balance, July 1 P 5,000Add: Collections from customers:

June sales (P 30,000 x 48%) P 14,400July sales (P 40,000 x 50%) 20,000 34,400

Total cash 39,400Less: Payments:

Merchandise suppliersJune purchase (P10,000 x 50%) P 5,000July purchase (P 15,000 x 50%) 7,500 12,500Marketing and administrative expenses 10,000Dividends 15,000 37,500

Cash balance before financing 1,900Add: Borrowings (P 5,000 – 1,900) 3,100Cash balance, July 31 P 5,000

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

[Problem 16]a. La Union Corporation Budgeted Cash Collections October – December 2000

Month of sales Amount October November December TotalPrevious to October P 245,000 P 210,000 P 30,000 P 240,000October sales 1,050,000 315,000 630,000P 73,500 1,018,000November sales 900,000 270,000 540,000 810,000December sales 850,000     75,000 75,000Collections from customers P 525,000 P 930,000 P 688,500 P2,143,500

b. La Union CorporationCash BudgetFor The Fourth Quarter, October – December 2000

October November December TotalCollections from customers P 525,000 P 930,000 P 688,500 P 2,143,500Payments: Merchandise purchases 520,000 720,000 620,000 1,860,000 Payroll 120,000 110,000 115,000 345,000 Lease payments 20,000 20,000 20,000 60,000 Advertising 70,000 80,000 80,000 230,000 Equipment purchases 30,000 - - 30,000 Total 760,000 930,000 835,000 2,525,000Operating inflows (outflows) (235,000) 0 (146,500) (381,500)Proceeds of loan 300,000 - - 300,000Interest payment (12,000) (12,000) (12,000) (36,000)Net cash inflows (outflows) 53,000 (12,000) (158,500) (117,500)Cash balance - beginning 250,000 303,000 291,000 250,000Cash balance - ending P 303,000 P 291,000 P 132,500 P 132,500

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

Cash sales P 350,000July sales [(P 1,500,000 – P 350,000) x 70%] 805,000June sales 420,000 July collections P 1,575,000

b. Cash payments to suppliers – July 2007July purchases (P 800,000 x 40%) P 320,000June purchases 280,000 July payments to suppliers P 600,000

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

(1)Operating expenses incurred P 320,000 Accrued expenses – beginning 45,000 - end (60,000) Prepaid expenses – beginning (23,000) - end 34,000

Operating expenses paid P 316,000

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

Sales P 1,500,000Less: Cost of goods sold:

Inventory, July 1 P 350,000Add: Purchases 800,000 Total goods available for use 1,150,000Less: Inventory, July 31 400,000 750,000

Gross profit 750,000Less: Operating expenses 320,000 Depreciation expense 15,000 335,000 Operating Income 415,000

Cash balance, July 1 P 80,000Add: Collections from customers P 1,575,000 Other revenues 30,000 Bank borrowings 150,000 1,755,000Total cash available for use 1,835,000Less: Payments Merchandise suppliers 600,000

Operating expenses (1) 316,000 Note payable paid Equipment purchases 60,000 Interest 2,000 1,178,000Cash balance, July 31 P 657,000

Add: Other revenues (1) 26,500 Interest expense (2,000) 24,500 Net Income P 439,500

(1) Cash received form other revenues P 30,000 Accrued income – July 1 (12,000) - July 31 14,500 Deferred revenues – July 1 3,000

- July 31 (9,000) Other revenues earned P 26,500

[Problem 18]a and b

(Revenues) (Expenses) a b

Revenues earned/Expenses incurred P 120,000 P 90,000Accruals – beginning 23,000 12,000

- ending (40,000) (15,000)Prepayments – beginning (22,000) (9,000)

- ending 8,000 11,000Cash received/cash paid P 89,000 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) P 1,500,000Less: Cost of goods sold 900,000 Gross profit 600,000Less: Operating expenses:

Variable marketing P 150,000Fixed marketing 50,000Fixed administrative 40,000Doubtful accounts (2% x 1.5 million) 30,000Depreciation expense (P 800,000/20) 40,000 310,000

Net income P 290,000 [Problem 20] Mexia Inc. Budgeted Income Statement For The Year Ended, December 31, 2007

Sales (P 9,000 x 110% x 105%) P 10,395 Less: Cost of goods sold (P 6,000 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)

Sales: Equipment (P 6,000 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 1,000 + 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 VarianceVariable Costs Costs Budget UF (F)

Gasoline P 5,323.00 P 5,512.50 P (189.50)FOil, minor repairs, parts and supplies 380.00 378.00 2.00UFOutside repairs 50.00 225.00 (175.00)F Sub-total 5,753.00 6,115.50 (362.50)F

Fixed CostInsurance 525.00 500.00 25.00UFSalaries and benefits 2,500.00 2,500.00 0.00Depreciation 2,310.00 2,200.00 110.00UF Sub-total 5,335.00 5,200.00 135.00UFTotals P 11,088.00 P 11,315.50 P (227.50)FCost per mile (Costs + 63,000 miles) P 0.1760 P 0.1796 P (0.0036)F

(1) Gasoline = 63,000 x P1.40/16 = P 5,512.50Oil, 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%) 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 P300,000 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.