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  • 1.  Help with Question about budgets

    Posted 02-23-2020 08:47 AM
      
    Fact Pattern:  
    The following information was adapted from a question on Part 4 of the December 1990 CMA examination that concerned preparation of a pro forma statement of cost of goods sold. The following is Watson Corporation's pro forma statement of cost of goods sold for the year ended August 31, Year 2.
    Watson Corporation
    Pro Forma Statement of Cost of Goods Sold
    For the Year Ending August 31, Year 2
    ($000 omitted)
    Direct materials:
    Materials inventory, 9/1/Yr 1
    $ 1,200
    Materials purchased
    11,400
    Materials available for use
    12,600
    Materials inventory, 8/31/Yr 2
    1,480
    Direct materials consumed
    $11,120
    Direct labor
    980
    Factory overhead:
    Indirect materials
    1,112
    General factory overhead
    2,800
    3,912
    Cost of goods manufactured
    16,012
    Add: Finished goods inventory
    9/1/Yr 1
    930
    Cost of goods available for sale
    16,942
    Less: Finished goods inventory,
    8/31/Yr 2
    (377)
    Cost of goods sold
    $16,565
    The results for the first quarter required the following changes in the budget assumptions:
    1. The estimated production in units for the fiscal year should be revised from 140,000 to 145,000 units with the balance of production being scheduled in equal segments over the last 9 months of the year. The actual first quarter's production was 25,000 units.
    2. The planned inventory for finished goods of 3,300 units at the end of the fiscal year remains unchanged and will be valued at the average manufacturing cost for the year. The finished goods inventory of 9,300 units on September 1, Year 1, had dropped to 9,000 units by November 30, Year 1.
    3. Due to a new labor agreement, the labor rate will increase 8% effective June 1, Year 2, the beginning of the fourth quarter, instead of the previously anticipated effective date of September 1, Year 2, the beginning of the next fiscal year.
    4. The assumptions remain unchanged for direct materials inventory at 16,000 units for the beginning inventory and 18,500 units for the ending inventory. Direct materials inventory is valued on a FIFO basis. During the first quarter, direct materials for 27,500 units of output were purchased for $2,200,000. Although direct materials will be purchased evenly for the last 9 months, the cost of the direct materials will increase by 5% on March 1, Year 2, the beginning of the third quarter. One unit of raw material is used in each unit of product.
    5. Indirect materials costs will continue to be projected at 10% of the cost of direct materials consumed.
    6. One-half of general factory overhead is considered fixed.
     Question:Watson's revised pro forma cost of goods sold statement will report direct materials purchased of

    A.$11,400,000
    B. $11,600,000
    C. $11,800,000
    D. $12,120,000


    Question:Watson's revised pro forma ending direct materials inventory is
    A. $1,280,000
    B. $1,480,000
    C. $1,520,136
    D.$1,554,000


    Question: 20 Watson's revised pro forma amount of direct labor cost is




    ------------------------------
    Asmaa Mohamed Salah
    ------------------------------


  • 2.  RE: Help with Question about budgets

    Posted 02-23-2020 03:12 PM
    Hello Asmaa,

    Despite of the 30 years age of this very extra large question, still it has a plenty of interesting calculations need to be done by using T accounts & pro-forma table.

    Would you please reply to my post by attaching a screen shot of this question (Clear image), because the structure has been mixed-up when you pasted the text. If you couldn't make it in one image please split the question into 2 paragraphs.

    Regards


    ------------------------------
    Samer Ahmad, FMVA, SCA
    Kuwait
    ------------------------------



  • 3.  RE: Help with Question about budgets

    Posted 02-25-2020 05:14 PM


    ------------------------------
    Asmaa Mohamed Salah Mahmoud Mostafa
    Unemployed
    Dakahlia
    Egypt
    ------------------------------



  • 4.  RE: Help with Question about budgets

    Posted 02-26-2020 10:08 AM
    Asmaa,

    This is what I come up with.  Do you have the answers?  Thank you.

    image.png

    Rebecca





  • 5.  RE: Help with Question about budgets

    Posted 02-27-2020 06:34 PM
    I have question , why production in direct material 145,000 unit  , and in Direct labor 140,000 unit 
    In direct labor , How we calculate 105,000 unit  and 735,000 , Thank you

    ------------------------------
    Asmaa Mohamed Salah Mahmoud Mostafa
    Unemployed
    Dakahlia
    Egypt
    ------------------------------



  • 6.  RE: Help with Question about budgets

    Posted 02-27-2020 08:02 PM
    Hi Asmaa,

    Production now requires 145,000 units of material and the direct labor associated to make the product.  The pro forma statement was based on producing 140,000 units at a direct labor cost of $980,000.

    The budgeted direct labor rate is the direct labor cost / units of production = $980,000 / 140,000 = $7  

    For the total direct labor cost, there are 2 rates to consider: the budgeted rate and the revised rate.
    The 105,000 units (1st QTR (25,000) + 2nd QTR (40,000) + 3rd QTR (40,000)) are calculated at the budgeted rate, since the new rate changed in the 4th QTR.
    $7 * 105,000 = $735,000

    Regards,
    Rebecca