STRATEGIC COST MANAGEMENT
Coke Company is preparing budgets for the second quarter ending June 30.
• Budgeted sales of the company’s only product for the next five months are:
April......... 20,000 units
May......... 50,000 units
June......... 30,000 units
July.......... 25,000 units
August..... 15,000 units
• The selling price is P10 per unit.
1. SALES BUDGET
SCHEDULE OF EXPECTED CASH COLLECTIONS
Additional data:
All sales are on account.
The company collects 70% of these credit sales in the month of the sale; 25% are collected in
the month following sale; and the remaining 5% are uncollectible.
The accounts receivable balance on March 31 was $30,000. All of this balance was collectible.
2. PRODUCTION BUDGET
Additional data:
• The company desires to have inventory on hand at the end of each month
equal to 20% of the following month’s budgeted unit sales.
• On March 31, 4,000 units were on hand.
3. DIRECT MATERIALS BUDGET
Additional data:
• 5 pounds of material are required per unit of product.
• Management desires to have materials on hand at the end of each month
equal to 10% of the following month’s production needs.
• The beginning materials inventory was 13,000 pounds.
• The material costs P0.40 per pound.
SCHEDULE OF EXPECTED CASH DISBURSEMENTS FOR MATERIAL
Additional data:
• Half of a month’s purchases are paid for in the month of purchase; the other half
is paid for in the following month.
• No discounts are given for early payment.
• The accounts payable balance on March 31 was P12,000.
4. DIRECT LABOR BUDGET
Additional data:
• Each unit produced requires 0.05 hour of direct labor.
• Each hour of direct labor costs the company P10.
• Management fully adjusts the workforce to the workload each month.
5. MANUFACTURING OVERHEAD BUDGET
Additional data:
• Variable manufacturing overhead is P20 per direct labor-hour.
• Fixed manufacturing overhead is P50,500 per month. This includes P20,500 in
depreciation, which is not a cash outflow.
6. ENDING FINISHED GOODS INVENTORY BUDGET
Additional data:
• Royal Company uses absorption costing in its budgeted income statement and
balance sheet.
• Manufacturing overhead is applied to units of product on the basis of direct labor-
hours.
• The company has no work in process inventories.
7. SELLING AND ADMINISTRATIVE EXPENSE BUDGET
Additional data:
• Variable selling and administrative expenses are P0.50 per unit sold.
• Fixed selling and administrative expenses are P70,000 per month and include
P10,000 in depreciation.
8. CASH BUDGET
