1. STRAIGHT PROBLEMS Basic operating budgets. Paniqui Company is in the process of preparing its operating budgets for 2014. The company produces and sells only one product, "Healthy Kick". The following data are taken from its statement of assumptions: Sales and collections. The product is currently sold at a unit price of P150 and is not expected to change in 2014. The following estimates are developed by the Market Research Department as probable sales in January 2014: Unit sales Probability 40,000 .30 50,000 .50 60,000 .20 Sales in the succeeding months are expected to increase by 10% from each month thereafter, except for the month of April which is expected to increase by 20% from the immediately preceding month. Eighty percent (80%) of sales is to be made on credit with terms of 2/10, n/40. Billings are made on the date of sales and collections are made as follows: in the month of sales with 55% paying within the discount period 5096 in the first month after sale in the second month after sale 596 uncollectible The accounts receivable balance on December 31, 2013 is expected to be P10,000,000, with 18% and 7% of it is coming from the November 2013 and October 2013 sales, respectively. Production. The finished goods inventory at the end is each month is set at 80% of the next month's sales. Materials. A unit of product Healthy Kick needs 4 lbs. of material X costing P5 per pound. Materials inventory at the end of the each month is estimated to be 50% of the next month's needs plus 12,000 lbs. Payments to materials suppliers are 50% in the month of purchase and 40% in the following month of purchase. The accounts payable balance on December 31, 2013 is estimated to be P500,000. d. Labor. It takes 2 hours to produce a unit of product Healthy Kick. On the average, production workers are paid at a rate of P40 per hour. Payroll costs amounting to 10% of the total payroll cost per month are estimated to be paid next month. Factory overhead. The standard variable factory overhead rate is P5 per hour. Total budgeted fixed overhead is budgeted at P5 million to be incurred evenly during the year. The company's normal capacity is 50,000 units per month. 4096 596 b. a. Required: Operating and financial budgets, together with supporting schedules, for the months of January, February, and March 2014: Sales in units and in pesos, net of discounts and allowance for doubtful accounts. b. Collections from customers. Production. d. Materials purchases in units and in pesos. Payments to materials suppliers. 1. STRAIGHT PROBLEMS Basic operating budgets. Paniqui Company is in the process of preparing its operating budgets for 2014. The company produces and sells only one product, "Healthy Kick". The following data are taken from its statement of assumptions: Sales and collections. The product is currently sold at a unit price of P150 and is not expected to change in 2014. The following estimates are developed by the Market Research Department as probable sales in January 2014: Unit sales Probability 40,000 .30 50,000 .50 60,000 .20 Sales in the succeeding months are expected to increase by 10% from each month thereafter, except for the month of April which is expected to increase by 20% from the immediately preceding month. Eighty percent (80%) of sales is to be made on credit with terms of 2/10, n/40. Billings are made on the date of sales and collections are made as follows: in the month of sales with 55% paying within the discount period 5096 in the first month after sale in the second month after sale 596 uncollectible The accounts receivable balance on December 31, 2013 is expected to be P10,000,000, with 18% and 7% of it is coming from the November 2013 and October 2013 sales, respectively. Production. The finished goods inventory at the end is each month is set at 80% of the next month's sales. Materials. A unit of product Healthy Kick needs 4 lbs. of material X costing P5 per pound. Materials inventory at the end of the each month is estimated to be 50% of the next month's needs plus 12,000 lbs. Payments to materials suppliers are 50% in the month of purchase and 40% in the following month of purchase. The accounts payable balance on December 31, 2013 is estimated to be P500,000. d. Labor. It takes 2 hours to produce a unit of product Healthy Kick. On the average, production workers are paid at a rate of P40 per hour. Payroll costs amounting to 10% of the total payroll cost per month are estimated to be paid next month. Factory overhead. The standard variable factory overhead rate is P5 per hour. Total budgeted fixed overhead is budgeted at P5 million to be incurred evenly during the year. The company's normal capacity is 50,000 units per month. 4096 596 b. a. Required: Operating and financial budgets, together with supporting schedules, for the months of January, February, and March 2014: Sales in units and in pesos, net of discounts and allowance for doubtful accounts. b. Collections from customers. Production. d. Materials purchases in units and in pesos. Payments to materials suppliers
