SHORT-TERM BUDGETING

Review
1. The process of creating a formal
plan and translating goals into a
quantitative format is
A. Process costing
B. Activity-based costing
C. Budgeting
D. Variance analysis
C. Budgeting
2. Which one of the ff best describes the role of top
management in the budgeting process?
A. Should be involved only in the approval process.
B. Lacks the detailed knowledge of the daily
operations and should limit its environment.
C. Needs to be involved, including using the budget
process to communicate goals.
D. Needs to separate the budgeting process and
the business planning into two separate processes.
 C. Needs to be involved,
including using the budget
process to communicate goals.
3. The budgeting tool or process in which
estimates of revenues and expenses are prepared
for each product beginning with the product's
research and development phase and traced
through to its customer support phase is a(n)
A. Master budget
B. Activity-based budget
C. Zero-based budget
D. Life-cycle budget
D. Life-cycle
budget
4. The information contained in a cost of goods
manufactured budget most directly relates to the
A. Materials used, direct labor, overhead applied, and
ending work-in-process budgets.
B. Materials used, direct labor, overhead applied, and
work-in-process inventories budgets.
C. Materials used, direct labor, overhead applied, work-in-
process inventories, and finished goods inventories
budgets.
D. Materials used, direct labor, overhead applied, and
finished goods inventories budgets.
B. Materials used, direct labor,
overhead applied, and work-in-
process inventories budgets.
5. Which one of the ff may be considered
an independent item in the preparation of
the master budget?
A. Ending inventory budget
B. Capital investment budget
C. Pro-forma income statement
D. Pro-forma statement of financial position
 B. Capital
investment budget
6. Josefina Company expects to manufacture and sell
30,000 baskets in 2012 for P6 each. There are 3,000
baskets in beginning finished goods inventory with target
ending inventory of 4,000 baskets. The company keeps no
work-in-process inventory. What amount of sales revenue
will be reported on the 2012 budgeted income statement?
A. P174,000
B. P180,000
C. P186,000
D. 204,000
A. P174,000

Sol'n:
Budgeted production (units) 30,000
+ Finished goods inventory, beg 3,000
- Finished goods inventory, end ( 4,000 )
Budgeted sales (units) 29,000
Budgeted sales in pesos (29,000xP6) P174,000
7. Following is the sales budget of U2 Company for the period January to June 2013:
Months Units
January 100,000
February 90,000
March 90,000
April 80,000
May 70,000
June 70,000
The company's projection is to have inventory on hand at the end of each month
equal to 70% of the sales for the month following. It is assumed that the inventory at
the end of December 2013 will meet this requirement. It is also estimated that the
80,000 units will be sold in July 2013. What is the total production budget in units for
the 6 months period ending June 30, 2013?

A. 556,000
B. 486,000
C. 524,000
D. 479,000
B. 486,000

Sol'n:
Sales 500,000
+ Finished goods inventory, end (80,000x70%) 56,000
Total goods available for sale 556,000
- Finished goods inventory, beg (100,000x70%) 70,000
Budgeted production 486,000
8. Southful, Inc. Desires to reduce its inventory of a
particular raw material by 40%. The inventory at the
beginning of the budget period is 240,000 units, and the
company plans to manufacture 168,000 units of output.
Each of these units require 2.5 units of raw materials.
How much of the raw materials should be purchased
during the budget period?

A. 316,000 units
B. 276,000 units
C. 324,000 units
D. 139,600 units
C. 324,000 units
Sol'n:
Budgeted production 168,000 units
X Standard materials per unit 2.5 units
Budgeted materials requirements 420,000
units
Decrease in materials inventory (240,000x40%) ( 96,000)
units
Budgeted materials purchases 324,000
units
9. Each unit of product Jollicat takes five direct labor hours to
make. Quality standards are high and 8% of units produced
are normally rejected due to substandard quality. Next month
budgets are as follows:
Beginning inventory of finished goods 3,000 units
Planned ending inventory of finished goods 7,600 units
Budgeted sales of Jollicat 36,800 units

All stocks of finished goods must have successfully passed the quality
control check. What is the direct labor budget for the month?
A. 198, 720 hours
B. 200,000 hours
C. 223,560 hours
D. 225,000 hours
D. 225,000 hours
Sol'n:
Budgeted sales 36,800 units
Finished inventory-end 7,600
Finished inventory-beg ( 3,000)
Budgeted production 41,400 units
Budgeted direct labor hours [(41,400/92%)x5hrs.] 225,000
10. Southwing Company is preparing a flexible budget for 2013
and the following maximum capacity estimates for department M
are available:
At maximum capacity
Direct labor hours 60,000
Variable factory overhead P150,000
Fixed factory overhead P240,000

Assume that Southwing's normal capacity is 80% of maximum capacity. What

would be the total factory overhead rate, based on direct labor hours, in a flexible
budget at normal capacity?
A. P 6.00
B. P 6.50
C. P 7.50
D. P 8.13
C. 7.50
Sol'n:
Normal capacity 48,000 hrs (60,000 hrsx80%)

Variable overhead rate (P150,000/60,000 hrs) P 2.50

Fixed overhead rate (P240,000/48,000 hrs) 5.00
Total overhead rate P 7.50