Mary Dalid founded Molid Company three years ago. The company produces a modem for use with minicomputers and microcomputers. Business has expanded rapidly since the company's inception. Bob Wells, the company's general accountant, prepared a bud¬

get for the fiscal year ending August 31, 2001. The budget was based on the prior year's sales and production activity because Mary believed that the sales growth experienced during the prior year would not continue at the same pace. The pro forma statements of income and cost of goods sold that were prepared as part of the budgetary process are presented below:

On December 10, 2000, Mary and Bob met to discuss the first quarter operating results.
Bob believed that several changes should be made to the budget assumptions that had been used to prepare the pro forma statements. He prepared the following notes that summa¬
rized the changes, which had not become known imtil the first quarter results were com¬
piled. He submitted the following data to Mary.

a. Actual first quarter production was 35,000 units. The estimated production for the fis¬
cal year should be increased from 162,000 to 170,000, with the balance of production being scheduled in equal segments over the last nine months of the fiscal year.

b. The planned ending inventory for finished goods of 3,300 units at the end of the fiscal year remains unchanged. The finished goods inventory of 9,300 umts as of September 1, 2000, had dropped to 9,000 units by November 30, 2001. The finished goods inventory at the end of the fiscal year will be valued at the average manufacturing costs for the year.

c. Direct materials sufficient to produce 16,000 units were on hand at the beginning of the fiscal year. The plan to have the equivalent of 18,500 units of production in direct ma¬
terials inventory at the end of the fiscal year remains unchanged. Direct materials in¬
ventory is valued on a LIFO basis. Direct materials equivalent to 37,500 units of output were purchased for $3.3 million during the first quarter of the fiscal year. Molid's sup¬
pliers have informed the company that direct material prices will increase 5% on March 1, 2001. Direct materials needed for the rest of the fiscal year will be purchased evenly through the last nine months.

d. On the basis of historical data, indirect material cost is projected at 10% of the cost of direct materials consumed.

e. One-half of general factory overhead and all marketing and general and administrative expenses are considered fixed.
Required:
Based on the revised data presented by Bob Wells, prepare new pro forma statements for income and cost of goods sold for the year ending August 31, 2001. (CMA adapted)

Transcribed Image Text:

Molid Company Pro Forma Statement of Income For the Year Ending August 31, 2001 (in thousands) Net sales Less: Cost of goods sold Gross profit Less: Operating expenses Net income before taxes $31,248 20,765 $10,483 5,400 $ 5,083