Dear Students,
Here are the answers for Pro Forma homework #1.
Note: These are always challenging assignments. Do not be discouraged if you had e
ors.
That's normal. Some of the challenge is getting used to the manual which is confusing in spots,
and some is remembering the accounting. That's why we are doing these now. Remember that I
will assign more homework than the homework cap, so you can afford to get stuff wrong at first.
Pro Forma Performance Report
Quarter Number 2 (Q2)
Sales revenue ( 102,000 units at $102.00 ) $10,404,000
[units sales time price]
Income from securities XXXXXXXXXX,600
[amount invested ($200,000) times assumed rate on short term investments (0.8%)]
$10,405,600
[Sales revenue plus securities income]
Cost of Goods Sold:
Beginning Inventory: ( 12,426 at $70.78 ) $879,492
[Beginning inventory for Q2 is the ending inventory for quarter 1. See exhibit 4.2]
Materials $1,440,000
[Materials costs for Q2 are on exhibit 4.3, $15 per unit times 96,000 units]
Direct Labor 3,384,000
[See exhibit 4.3. Labor costs are $39 for first 60,000 units, $29 for next 40,000 units. Since we
produced 96,000, that comes to $2,340,000 plus $1,044,000]
Total Direct Costs $4,824,000
[Materials costs plus Labor costs]
Warehousing Costs $15,278
[We assumed we would produce 96,000 units, and sell 102,000, which reduces our inventory by
6,000 units to 6,426 units ending inventory. Warehousing costs are defined for ending inventory
at $1/unit for the first 2,000 units, and $3/unit for next 5,000 units. So, $2,000 plus $3 times
4,426 gets us $15,278.]
Depreciation: Mach. and Equip. $478,125
[Depreciation is straight-line in Fingame. Machinery has an 8 quarter life, and is determined
when the machinery is installed. If you buy it in Q3, it will be installed in Q4 - that is, there is a
1 period lag. We can't know when it was purchased. This number was given to us in exhibit
4.3. This will become more complicated as machinery or plant capacity continue to depreciate
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and as we buy more.]
Plant 1,300,000
[Depreciation is straight-line in Fingame. Plant Capacity has a 20 quarter life, and is determined
when the capacity is installed. If you buy it in Q3, it will be installed in Q5 - that is, there is a 2
period lag. We can't know when it was purchased. This number was given to us in exhibit 4.3.
This will become more complicated as machinery or plant capacity continue to depreciate and as
we buy more.]
Other Overhead Costs XXXXXXXXXX,000
[This is given in exhibit 4.3 These numbers will change once we start doing projects A and B.
We have not yet done so, it is just given to us in 4.3.]
Total Indirect Costs 1,993,403
[Warehousing cost plus machine depreciation plus plant depreciation plus other overhead.]
[COGS will be Beginning inventory plus direct costs plus indirect costs minus ending inventory.
You should get $7,240,729, although a bit of round off e
or creeps in thru the inventory costs. If
you are within a few dollars, you are okay.]
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Pro Forma homework #2 (2 points)
Continuing with the same assumptions we made for Pro Forma #1, lets finish out the income
statement. Remember, we are still trying to anticipate what would happen given our initial
assumptions as we go from Q1 to Q2. Fill in the blanks. Please type your answer.
Please Indicate the following:
Output Explanation
Production Costs XXXXXXXXXXunits at $71.01 each = $6,817,403. ___________
[Production costs are $6,817,403. Divided by 96,000 gets us XXXXXXXXXX, which rounds to 71.01.]
Goods Available for Sale ( $70.99 per unit ), total = $$7,696,894. ___________
[$7,696,894 divided by units for sale, which is 108,426 to get $ XXXXXXXXXXwhich rounds to $70.99.]
Less: Ending Inventory XXXXXXXXXXunits ) valued at $ XXXXXXXXXX___________
[12426 inventory + 96,000 produced = XXXXXXXXXXavailable. Divide by XXXXXXXXXXto get $456166.]
Cost of Goods Sold $______ ___________
[102,000 times XXXXXXXXXX = $7,240,728]
Gross Profit $______ ___________
[ gross revenue $10,405,600 - Cost of good sold $7,240,729 = $3,164,871.]
Selling and administrative expenses $______ ___________
[$1,000,000 plus 5% of sales (p. 63) = $1,520,200.]
Financial Expenses:
Short Term Bank Interest $______ ___________
[ no short-term bank loans.]
Penalty Loan Interest $______ ___________
[ no penalty loans.]
Intermediate Term Loan Interest $______ ___________
[ $83030 see exhibit 4.3.]
Bond Interest $______ ___________
[ $33,600 see exhibit 4.3. ]
Bond Redemption Costs $______ ___________
[ no bond redemptions. ]
Total Financial Charges $______ ___________
[ Sum of above items. In this case $83,030 + $33, 600 = $116,630.]
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[Plus Selling and Administrative $1,520,200.]
Subtotal $116,630 + $1,520,200 = $1,636,830.]
Operating Income Before Extraordinary Items $______ ___________
[Gross Profit $3,164,871, less admin., financing costs = $1,528,041 .]
Extraordinary Items $______ ___________
[ no extraordinary items.]
Income Before Taxes $______ ___________
[Oper. Income less extraordinary items, still $1,528,041.]
Income Tax (rate is 40%) $______ ___________
[40% times $1,528,041 = $611,216 .]
Income After Taxes $______ ___________
[60% times $1,528,041 = $916,825.]
Prefe
ed Stock Dividends $______ ___________
[ no prefe
ed stock.]
Earnings to Common Stockholders $______ ___________
[After tax income less pref. dividends, still $916,825.]
Common Stock Dividends ( $0.20 per share ) $______ ___________
[ 1,000,000 shares times $0.20 = $200,000.]
Net Income Transfe
ed to Retained Earnings $______ ___________
[$916,825 - $200,000 = $716,825.]
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Pro Forma homework #3 (2 points)
Continuing with the same assumptions we made for Pro Forma #1, remember, we are still trying
to anticipate what would happen given our initial assumptions as we go from Q1 to Q2. Fill in
the blanks. Please type your answer.
This next Pro Forma is the most challenging. The first item is the cash balance. Some financial
accountants argue that companies should produce three accounting documents for their managers
and investors: an income statement, a balance sheet, and a statement of cash flows. Fingame
collapses the last one into one term - the cash balance. This makes it challenging because nearly
every decision the firm makes has implications for the cash balance. Even in a simplified
simulation, the interactions are quite complicated. When I first tried to figure it out, it took hours
of checking with a spreadsheet to get it right. I don’t expect students to put so much time in it,
ut give it a shot and well talk about it Wednesday.
Please Indicate the following:
Pro Forma Position Statement
Quarter Number 2
ASSETS
Cu
ent Assets Amount Source
Cash $______ __________
Marketable Securities $______ __________
Accounts Receivable $______ __________
Inventory ( _____ units at $_____ /UNIT ) $______ __________
Total Cu
ent Assets $______ __________
Fixed Assets (net of depreciation)
Machinery and Equipment $______ __________
Plant $______ __________
Total Fixed Assets $______ __________
Total Assets $______ __________