Strategic Business Analysis

SHORT-TERM BUDGETING

Elliana Inc. is preparing its Master Budget for 2022. Budget information are as follows:
Sales Production CostOperating Expenses
2022 Q1 280,000.00 192,000.00 64,000.00
Q2 320,000.00 200,000.00 68,000.00
Q3 360,000.00 224,000.00 72,000.00
Q4 352,000.00 200,000.00 76,000.00
2023 Q1 320,000.00 224,000.00 72,000.00

The budgeted finished goods inventories are:

2021 March 31 56,000.00
June 30 52,000.00
September 30 60,000.00
December 31 48,000.00

The company uses the JIT system on its purchase of materials. It buys materials on cash basis.
Included in production cost each quarter is P 44,000 in depreciation. The operating expenses include depreciation of P 12,000 per quarter.
All production costs and operating expenses, with the exemption of depreciation are to be paid during the quarter of incurrence.
Collections on sales are planned at 60% during the quarter of sales, the balance during the quarter following the sale.
Dividends of P 20,000 are to be paid in June and again in December if covered by sufficient profits. No dividends will be paid if the net profit is less than P 120,000.
Income tax is equal to 32% of the quarter’s income before tax and is paid in the following quarter.

The company’s balance sheet as of December 31,2021 is as follows:

Elliana Inc.
Balance Sheet
December 31, 2021

ASSETS LIABILITIES AND EQUITY

Cash 76,000.00 Income tax payable 12,000.00
AR, net 120,000.00
Inventory 44,000.00 Capital stock 640,000.00
PPE, net 580,000.00 Retained earnings 168,000.00
Total 820,000.00 Total 820,000.00 0.00

Requirements:
1. How much was the actual sales during the last quarter of 2021?
Actual Sales, Q4 2021
AR - 12/31/2021 (40% of the quarter's sales) 120,000.00
40%
Actual Sales, Q4 2021 300,000.00

2. What is the total budgeted cost of goods sold for the year 2022?

Budgeted Income Statement

Year 2022

Q1 Q2 Q3 Q4 TOTAL
Sales 280,000.00 320,000.00 360,000.00 352,000.00 1,312,000.00
Less: COGS
FGInv, beg 44,000.00 [1] 56,000.00 52,000.00 60,000.00 44,000.00 *beg of the year
Add: Production Cost 192,000.00 200,000.00 224,000.00 200,000.00 816,000.00
COGAS 236,000.00 256,000.00 276,000.00 260,000.00 860,000.00
Less: FGInv, end 56,000.00 52,000.00 60,000.00 48,000.00 48,000.00 *end of the year
COGS 180,000.00 204,000.00 216,000.00 212,000.00 812,000.00
Gross Income 100,000.00 116,000.00 144,000.00 140,000.00 500,000.00
Less: Operating Expenses 64,000.00 68,000.00 72,000.00 76,000.00 280,000.00
Income before tax 36,000.00 48,000.00 72,000.00 64,000.00 220,000.00
Less: Tax (32%) 11,520.00 15,360.00 23,040.00 20,480.00 70,400.00
Net Income 24,480.00 32,640.00 48,960.00 43,520.00 149,600.00

3. How much dividends will be paid in 2022?

As per the budgeted income statement presented above, net income for the year is P149,600.00. Since the year’s budgeted net income is not less than P 120,000, a total of P 40,000 of dividends shall be paid during the year.

4. What is the total budgeted cash disbursements for production costs and operating expenses for the year 2022?
Total production costs 816,000.00
Add: Total operating costs 280,000.00
Total production and operating costs 1,096,000.00
Less: Depreciation
([P 44,000 + 12,000] x 4) 224,000.00
872,000.00
Cash disbursements for production cost and operating expenses

5. What is the budgeted cash balance on December 31, 2022?

CASH BUDGET
Year 2022
Q1 Q2 Q3 Q4 TOTAL
Cash Balance, beg 76,000.00 152,000.00 212,480.00 301,120.00 76,000.00
Add: Receipts
Current Quarter - 60% 168,000.00 192,000.00 216,000.00 211,200.00 787,200.00
Previous Quarter - 40% 120,000.00 [2] 112,000.00 128,000.00 144,000.00 504,000.00
Total Receipt 288,000.00 304,000.00 344,000.00 355,200.00 1,291,200.00
Total Cash Available 364,000.00 456,000.00 556,480.00 656,320.00 1,367,200.00
Less: Disbursement
Product cost, net of depreciation/quarter 148,000.00 156,000.00 180,000.00 156,000.00 640,000.00 *depreciation is 44,000
Operating cost, net of depreciation/quarter 52,000.00 56,000.00 60,000.00 64,000.00 232,000.00 *depreciation is 12,000
Dividends June and December 20,000.00 20,000.00 40,000.00
Income Tax 12,000.00 11,520.00 15,360.00 23,040.00 61,920.00
Total Disbursements 212,000.00 243,520.00 255,360.00 263,040.00 973,920.00
Cash Balance, end 152,000.00 212,480.00 301,120.00 393,280.00 393,280.00

6. What is the expected balance of accounts receivable as of December 31, 2022?

Q4 Sales 352,000.00
0.4 Collections on sales are planned at 60% during the quarter of sales, the balance during the quarter following the sale.
140,800.00

7. What is the budgeted balance of raw materials inventory as of December 31, 2022?
The company uses JIT purchasing system for acquisition of materials. Since under JIT system,
inventories are kept at minimum or zero, no inventory was maintained for materials. The ending
inventory balance of P 48,000 which was already given was composed of finished goods only.

8. What is the expected balance of income tax payable as of December 31, 2022?
P 20,480.00 Provision for income tax in the 4th quarter of 2022 will be paid in the first quarter of the
following year. This will therefore be the balance of income tax payable as of the end of this year.

9. What is the budgeted balance of retained earnings as of December 31, 2022?

Retained earnings, beginning balance 168,000.00 [3]
Add: Budgeted net income, 2022 149,600.00 [4]
Total 317,600.00
Less: Dividends paid 40,000.00 As per the budgeted income statement presented above, net income for the year is P149,600.00. Since the year’s budgeted net income is not less than P 120,000, a total of P 40,000 of dividends shall be paid during the year.
Retained earnings, December 31, 2022 277,600.00

10. What is the expected balance of the plant and equipment accounts as of December 31, 2022?
Plant and Equipment, January 1, 2022 580,000.00
Less: Depreciation 224,000.00 [5]Included in production cost each quarter is P 44,000 in depreciation. The operating expenses include depreciation of P 12,000 per quarter.
Plant and Equipment, December 31, 2022 356,000.00

11. If a budgeted balance sheet as of December 31, 2022 is to be prepared, how much will be the total assets?
Cash 393,280.00 [6]
Accounts Receivable 140,800.00 [7]
Inventories (given) 48,000.00 [8]
Plant & Equipment 356,000.00 [9]
Total Assets P 938,080.00 938,080.00
[1] based on statement of FP (Inventory)
-Ida Kristina Ramos

[2] 300000 (Actual sales Q4 2021) *.4

-Ida Kristina Ramos

[3] (fr. Balance sheet)

-Ida Kristina Ramos

[4] (from Income Statement)

-Ida Kristina Ramos

[5] ([44,000 + 12,000] x 4)

-Ida Kristina Ramos

[6] Cash (from #5)

-Ida Kristina Ramos

[7] Accounts Receivable (from #6)

-Ida Kristina Ramos

[8] Inventories (given)

-Ida Kristina Ramos

[9] Plant & Equipment (from #10)

-Ida Kristina Ramos