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    Activity-No.-1

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    Activity-No.-1

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    Activity-No.-1

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    of 1

    AE 23: Strategic Cost Management Prof. Emy Rose C.

    Migo, CPA
    Activity No. 1 Computation

    1 Bi Love Kita Company is in the process of preparing its operating budgets for 2025. The company produces and sells only one
    product "Habibi". The following data are taken from its statement of assumptions:
    a. Sales and collections. The product is currently sold at a unit price of P150. The following estimates are developed by the
    Market Research Department as probable sales in January 2025:
    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 are 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:

    40% in the month of sales with 55% paying within the discount period
    50% in the first month after sale
    5% in the second month after sale
    5% uncollectibles
    The accounts receivable balance on December 31, 2024 is P4,000,000, with 75% of it is coming from the December 2024
    sales.
    b. Production. The finished goods inventory at the end is each month is set at 80% of the next month's sales.
    c. Materials: A unit of product Habibi needs 4 lbs. of material X costing P5 per pound. Materials inventory at the end of the each
    month is estimated to be 20% of the next month's needs plus 20,000 lbs. Payments to materials suppliers are 60% in the
    month of purchase and 40% in the following month of purchase. The accounts payable balance on December 31, 2024 is
    P600,000.
    d. Labor. It takes 2 hours to produce a unit of product Habibi. On the average, production workers are paid at a rate of P40 per
    hour. Payroll costs amounting to 20% of the total payroll cost per month are estimated to be paid in the next month.
    e. Factory overhead. The standard variable factory overhead rate is P5 per hour. Total budgeted fixed overhead is set at P6
    million to be incurred evenly during the year. The company's normal capacity is 50,000 units per month.

    Required: Budgeted operating and financial data for the months of January, February, and March 2025
    a. Sales in units and in pesos, net of allowance for doubtful accounts and discounts.
    b. Collections from customers.
    c. Production.
    d. Materials purchases in units and in pesos.
    e. Payments to materials suppliers.
    f. Direct Labor
    g. Factory Overhead
    h. Total Production costs

    2 In the 2023, Rim company priced its product at ₱180 per unit, successfully selling 2,100 units, which corresponded with its
    production output. The cost of raw materials was ₱40 per unit, utilizing a total of 6,300 kilograms. Conversion costs amounted to
    ₱60,000, and the company operated at a production capacity of 2,500 units, with commissions of ₱20 for each unit sold. This
    year 2024, the selling price rose to ₱220, but sales declined to 2,000 units, reflecting the total production. Although the raw
    material price decreased to ₱38 per unit, resulting in the use of 8,000 kilograms, conversion costs saw a slight increase to
    ₱62,000. While the production capacity remained stable at 2,500 units, commissions were lowered to ₱15 per unit sold.
    Calculate the following;

    a. Operating income for 2023 and 2024.


    b. Net effect, revenue and cost effect from growth component
    c. Net effect, revenue and cost effect from price-recovery component
    d. Net effect and cost effect from productivity component

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