Course Code: Financial Management

Student Activity Sheet Module #9

Name: _________________________________________________________ Class number: ____

Section: ____________ Schedule: __________________________________ Date: ___________

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Lesson title: FINANCIAL PLANNING AND BUDGETING (CONT.) Materials:
Lesson Objectives: SAS
At the end of this module, I should be able to: References:

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1. prepare the sales budget, production budget, materials Timbang, F. L. (2015).

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purchases budget and direct labour budget Financial Management, Part
2. explain their importance 1. Quezon City: C & E

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Publishing, Inc.

Managerial Accounting: The

A Cornerstone of Business
Decisions, 4e. by Mowen,
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M. and Hansen D. (2012)
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COC Teacher’s Guide

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Productivity Tip: Schedule doing practice drills similar to the ones in this module two more times this
week. Spacing your practice time will help you master the process!
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A. LESSON PREVIEW/REVIEW
1) Introduction
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In preparing an operating budget, which do you think comes first between sales budget and
production budget? What makes you say so?
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In this module, we will learn about some of the components or supporting schedules of an
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operating budget. We will get to learn as well their functions in the overall budgeting process. By
knowing and preparing them, we will get to know how important they are and their accuracy.
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2) Activity 1: What I Know Chart, part 1 (3 mins)

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 Course Code: Financial Management
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Do you know anything about an operating budget? Try answering the questions below by writing
your ideas under the first column What I Know. It’s okay if you write key words or phrases that

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you think are related to the questions.

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What I Know Questions: What I Learned (Activity 4)
What is a sales budget?

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How do you define a production
budget?
Are sales budget and production
budget related? In what way?
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B.MAIN LESSON
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1) Activity 2: Content Notes

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sales  approved by the budget committee and describes expected sales in units and
budget pesos
 the basis for all of the other operating budgets and most of the financial budgets
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 first step includes making the sales forecast

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production  tells how many units must be produced to meet sales needs and to satisfy ending
budget inventory requirements
 to compute,
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Units to be produced = Expected unit sales + Units in desired ending inventory (EI) –
Units in beginning inventory (BI)
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direct  tells the amount and cost of raw materials to be purchased in each time period
materials  to compute,
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purchases Purchases = direct materials needed for production + direct materials in desired ending
budget inventory – direct materials in beginning inventory
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direct  shows the total direct labor hours and the direct labor cost needed for the number
labour of units in the production budget
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budget

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 Course Code: Financial Management
Student Activity Sheet Module #9

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 as with direct materials, the budgeted hours of direct labor are determined by the
relationship between labor and output

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Activity 3: Skill-building Activities

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Let’s practice! To assess what you have read in advance, answer the exercises that follow. After

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completing each exercise, you may refer to the Key to Corrections for feedback. Try to complete

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each exercise before looking at the feedback.

Exercise 1: Camia’s Widgets plans to sell 22,000, 19,000, 18,000 and 20,000 units, respectively,
in each quarter of 2019. Selling Price is P2.00 per unit. Prepare a sales budget for each quarter
and for the year.
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Exercise 2: The sales estimates for the first four months of 2019 are as follows:
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January 20,000 units

February 30,000
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March 45,000
April 50,000
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There are 5,000 units on hand as of January 1, 2019. It has been the practice of the company to
maintain its stock at 20% of the succeeding month’s estimated sales volume. Prepare a
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production budget for the first three months of 2014.

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Exercise 3: Jones Corporation has the following budgeted sales for the selected six-month period:
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Month Unit Sales

June 15,000
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July 20,000
August 35,000
September 25,000
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October 30,000
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November 20,000

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 Course Code: Financial Management
Student Activity Sheet Module #9

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Section: ____________ Schedule: __________________________________ Date: ___________

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There were 7,500 units of finished goods in inventory at the beginning of June. Plans are to have

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an inventory of finished product equal to 20 percent of the unit sales for the next month.

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Three pounds of materials are required for each unit produced. Each pound of material costs P20.
Inventory levels for materials equal 30 percent of the needs for the next month. Materials inventory

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on June 1 was 5,000 pounds.

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Prepare a purchases budget in pounds and pesos for July, August, and September.

2) Activity 4: What I Know Chart, part 2

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It’s time to answer the questions in the What I Know chart in Activity 1. Log in your answers in the
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table.
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C. LESSON WRAP-UP
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1) Activity 6: Thinking about Learning

Congratulations for finishing this module! Shade the number of the module that you finished.
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Did you have challenges learning the concepts in this module? If none, which parts of the module helped
you learn the concepts?
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__________________________________________________________________________________
Some question/s I want to ask my teacher about this module is/are:
__________________________________________________________________________________
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_________________________________________________________________
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 Course Code: Financial Management
Student Activity Sheet Module #9

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Section: ____________ Schedule: __________________________________ Date: ___________

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FAQ

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1. Are budgets always fixed?
 Oftentimes, budgets are flexible. They are based on estimates and can be adjusted by the

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budget committee.

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KEY TO CORRECTIONS

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Answers to Skill-Building Exercises

Exercise 1:

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Camia’s Widgets
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Sales budgets
For the year ended December 31, 2019
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Quarter
1 2 3 4 Year
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Units P22,000 P19,000 P18,000 P20,000 P79,000

Selling x P2 x P2 x P2 x P2 x P2
price
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Budgeted P44,000 P38,000 P46,000 P40,000 P158,000

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sales
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Exercise 2:
Camia’s Widgets
Sales budgets
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For the year ended December 31, 2019

January February March
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Sales in units 20,000 30,000 45,000

Desired ending 6,000 9,000 10,000
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inventory
Total needs 26,000 39,000 55,000
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Less: beginning 5,000 6,000 9,000

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 Course Code: Financial Management
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inventory
Units to be 21,000 33,000 46,000

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produced
Solution:

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Ending inventory January 30,000 x 20% = 6,000
Ending inventory February 45,000 x 20% = 9,000

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Ending inventory March 50,000 x 20% = 10,000

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Exercise 3:
July August September

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Units to be produced 23,000 33,000
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Desired ending inventory* 29,700 23,400 25,200**

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Production needs*** 69,000 99,000 78,000
Total needs 98,700 122,400 103,200
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Less: Beginning inventory 20,700 29,700 23,400

Purchases needed in lbs. 78,000 92,700 79,800
Cost (P20 per lb.) P20 P20 P20
Total purchase cost P1,560,000 P1,854,000 P1,596,000
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* 0.30 times next month's needs

** (30,000 + 4,000 - 6,000) x P3 x 0.30
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*** 3 lbs. times units to be produced

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 Course Code: Financial Management
Student Activity Sheet Module #9

Name: _________________________________________________________ Class number: ____

Section: ____________ Schedule: __________________________________ Date: ___________

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3) Activity 5: Check for Understanding (Graded Summative Test)
Choose the letter of your answer for each item.

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1. The planned ending cash balance for the year appears on which of the following statements?

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a. budgeted income statement
b. budgeted balance sheet

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c. production budget

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d. budgeted cash receipts
e. budgeted cash disbursements

2. Which of the following is true of the master budget?

a.
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Monthly budgets are derived by dividing the master budget by 12
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b. Fixed costs cannot change from one month to another
c. Variable costs cannot change from one month to another
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d. The master budget can reflect seasonal effects

e. None of these
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3. In budgeting direct labor hours for the coming year, it is important to:
a. multiply production in units by the direct labor hours per unit.
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b. divide production in units by the direct labor hours per unit.

c. subtract production in units from the direct labor hours per unit.
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d. subtract direct labor hours per unit from production in units.

e. multiply production in units by the labor wage rate.
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4. Which of the following appears on the budgeted balance sheet?

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a. estimated sales
b. estimated cost of goods sold
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c. estimated ending accounts receivable

d. estimated fixed selling expense
e. estimated fixed factory overhead
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5. A production budget is most important for which of the following?

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 Course Code: Financial Management
Student Activity Sheet Module #9

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a. retail stores
b. manufacturing firms

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c. not for profit agencies
d. local government agencies

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e. all of these

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6. The ____ is the person responsible for directing and coordinating the organization's overall

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budget process

a. budget master
b. controller
c. chief financial planner
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d. budget director
e. chief accountant
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7. Budgets are prepared in which of the following orders?

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a. production budget, sales budget, direct labor budget

b. production budget, cost of goods sold budget, direct labor budget
c. sales budget, cash budget, production budget
d. sales budget, production budget, direct materials purchases budget
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e. production budget, cash budget, direct materials purchases budget

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8. Which of the following statements is true?

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a. The production budget is the first budget to be prepared in the master budget.
b. The cash budget is prepared before the direct materials purchases budget.
c. The budgeted balance sheet is prepared after the cash budget.
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d. Service firms need not prepare a master budget.

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e. The cost of goods sold budget is prepared before the direct labor and overhead budgets.

9. Which of the following is not true?

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a. The sales forecast is done before the sales budget.

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b. The master budget is the comprehensive plan for the organization as a whole.

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 Course Code: Financial Management
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c. The production budget is prepared in units and pesos.
d. One approach to forecasting sales is the bottom up approach.

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e. In creating the sales forecast, outside factors such as the state of the economy, should be
considered.

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10. A company has provided a sales budget for the next four months (January, February, March,

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and April). It bases its production budget on the sales budget, and has a policy that each month's

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ending inventory of finished product must be equal to 25% of the following month's sales needs.
The direct materials purchases budget is based on the production budget. The company's policy
for each month's ending inventory of raw materials is that they must be equal to 10% of the
following month's production needs for raw materials. Given this information, the company can

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prepare direct materials purchases budgets for how many months?
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a. One
b. Two
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c. Three
d. Four
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e. Five
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