Selected Exercises in preparation of Question 1 on

BA 6601 (Section 9) Compressive Exam

QUESTION 1
MERCY COMPANY produces a single product; product X. In February 2011, The companys
management is concerning preparation of the companys master budget for next month (march 2011) to
plan its profit.
The companys management predicts sales for March 2011 and April 2011 will be $42,000 and $48,000,
respectively.
Product X are purchased to resell at a markup of 60% of cost.

Starting from March 2011 onward, 70% of the sales are cash sales. The credit sales should be collected in
the following manners :
60% collected in the month of sale
40% collected in the next month
On 1 March 2011, the company has balance of accounts receivable of $5,460. No uncollectible amount is
estimated.
To be a cushion against short of product X available for sale, the management planned to maintain
balance of inventory of product X at the end of each month at 20% of next months cost of goods sold.
On 1 March 2011, the company has balance of inventory (Product X) of $12,960
All Product X purchases are made on credit and due within 10 days after purchased. This mean that twothird (2/3) of the amount purchases in March 2011 is due in March 2011 and remaining one-third (1/3) of
amount purchases in March 2011 is due in April 2011.
On 1 March 2011, the company has balance of accounts payable of $5,000 which is due in March 2011 in
entirety
The following selling general and administrative (SG&A) expenses are expected to incur in March 2011 :
Salaries
Utilities
Rent (prepayment)
Gasoline
Advertising (prepayment)
Depreciation

$ 5,800
750
3,000
500
1,200
1,500

Salaries and gasoline are paid for when the expense is incurred. Utilities are paid for in the following
month (the February 2011 utility bill was $720). Three-month rent was prepaid on 1 February 2011 . On 1
March 2011, an advance of $3,600 was given to an advertising agency for 3 months of promotion.
The company is subjected to 30% tax rate. No tax payment is made in March 2011 (Tax payment will be
made in May 2011).
The cash balance as at 1 March 2011 is $8,600.
Required :

Fill all necessary numbers out in the ANSWER SHEET FOR QUESTION 1
provided.

QUESTION 2
Mrs. Angela runs a children toy shop named ENJOY COMPANY. In July 2010, she is in process of
preparing her companys first cash budget to make liquidity planning.
She predicts sales for August 2010 and September 2010 will be $35,000 and $28,000, respectively.
All toys are purchased to resell at a markup of 80% of cost.

Starting from August 2010 onward, 40% of the sales are cash sales. The credit sales should be collected
in the following manners :
70% collected in the month of sale
28% collected in the next month
2% is estimated to be uncollectible in the month of sale
On 1 August 2010, customers owe the shop $350 for sales made in June 2010 and $3,150 for sales made
in July 2010 (Balance of accounts receivable as at 1 August is $350 + $3,150 = $3,500). Angela estimated
in August 2010 that the balance of receivables of $350 resulting from credit sales in June 2010 will
entirely go uncollected and all balance of receivables of $3,150 from credit sales in July 2010 will
entirely be collected in August 2010.

To be a cushion against short of toys available for sale, she planned to maintain balance of inventory of
toys at the end of each month equal to 20% of next months cost of goods sold.
The toys purchases for July are $13,125. All toys purchases are made on credit and due within 10 days
after purchased. This mean that approximately two-third (2/3) of each months purchases are paid for in
the month of purchases and one-third (1/3) of each months purchases are paid for in the month after the
purchases were made.
On 1 August 2010, the company has balance of accounts payable of $3,850 whereby payments to
suppliers are due in August in entirety
The following selling general and administrative (SG&A) expenses are expected to incur in August 2010
:
Salaries
Utilities
Rent (prepayment)
Gasoline
Advertising (prepayment)
Depreciation
Bad debt

$ 2,800
875
5,250
350
875
1,200
?

Salaries and gasoline are paid for when the expense is incurred. Utilities are paid for in the following
month (the July utility bill was $787). Three-month rent was prepaid on 1 July 2010 . On 1 August 2010,
an advance of $1,750 was given to an advertising agency for 2 months of promotion.
The cash balance as at 1 August 2010 is $2,625.

Required :

Fill all necessary numbers out in the ANSWER SHEET FOR QUESTION 2
provided.