CMA Part 2 Slides

CMA Learning System, Version 3.0, 2nd Edition

Part 2 Participant’s Guide

Session 1

Updated Slides

These updated slides are being provided to update the CMA Learning System with suggestions received by instructors of the CMA Learning System, and to provide further discussions and clarifications relevant to the content of the CMA Exam. These slides are to provide replacements of those slides that have been requested be updated. In the updates and errata process, it is important to include those suggestions that are deemed necessary and in alignment with the CMA Exam.

Session 1

Session 2

Updated Exercise and Slides

Session 2

Session 2 Exercise: Financial Statement Analysis Ratios

All-Things, Inc. Comparative Statement of Financial Position

As of May 31 (in thousands)

Year 3 Year 2 Cash $ 400 $ 500 Marketable securities (at cost) 500 500 Accounts receivable (net) 3,200 2,600 Inventory 5,800 5,400 Total current assets 9,900 Property, plant, and equipment (net)

9,000 7,100 7,000

Total assets $17,000 $16,000 Accounts payable $3,700 $3,400 Income taxes payable 900 800 Accrued expenses 1,700 1,400 Total current liabilities 6,300 Long-term debt

5,600 2,000 1,800

Total liabilities 8,300

Common stock ($1 par value) 2,700 2,700 Paid-in-capital in excess of par 1,000 1,000 Retained earnings 5,000 4,900 Total shareholders’ equity 8,700

Total liabilities and shareholders’ equity $17,000 $16,000

Session 2

Session 2 Exercise Solution: Financial Statement Analysis Ratios Net Profit Margin Percentage

• Measures the net income generated by each dollar of sales. The net profit margin ratio provides some indication of the ability of the firm to absorb cost increases or sales declines.

• All-Things’ net profit margin has been improving and is currently above the industry average. The improvement in net profit margin further indicates the ability of the firm to weather soft economic periods, pay down debt, or take on additional debt for expansion.

C. At least two limitations of ratio analysis include the following:

• It is often difficult to make comparisons among firms within an industry due to accounting differences. Different numbers can be shown in the financial statements for the same economic event because of different accounting methods, such as straight-line versus accelerated depreciation, LIFO versus FIFO inventory, and so forth.

• Ratios represent past conditions that may not indicate future trends.

Session 2

Session 3

Updated Slides

Session 3

Session 4

Updated Slides

Session 4

Session 4 Exercise Solution: Current Variance (Page 106) 3. Material quantity variance = standard price x [(standard usage per unit x actual units produced) – actual quantity used] Standard Price Ounces Used* Cookie mix 0.02 x [(10 x 450,000 units) – 4,650,000] = $ 3,000 U Milk chocolate 0.15 x [(5 x 450,000 units) – 2,660,000] = 61,500 U Almonds 0.50 x [(1 x 450,000 units) – 480,000] = 15,000 U $79,500 U * (Standard ounces x actual units produced) – actual units used = variance

4. Labor efficiency variance = standard hourly rate x (standard hours – actual hours)

Standard Cost Minutes Used*

Mixing ($14.40/hr. 60 minutes)

x [(1 min. x 450,000 units) – 450,000 min.] = $ 0

Baking ($18.00/hr. 60 minutes)

x [(2 min. x 450,000 units) – 800,000 min.] = 30,000

$30,000 F * [(Standard minutes x actual units produced) – actual minutes used) = variance

5. Variable overhead efficiency variance = standard hourly rate x (standard hours – actual hours) $32.40/hr60 min. ( 450,000 min. + 800,000 min. )] = $54,000 F[( 3 min. x 450,000 units ) -x

6. Variable overhead spending variance = (actual min. x standard overhead rate) – actual variable overhead

7. Contribution margin volume variance = budgeted unit contribution* x (actual units – budgeted units)

* $1,636,000 contribution margin 400,000 budgeted units

= $4.09

$4.09 x (450,000 units – 400,000 units) = $204,500 F

$32.40/hr. 60 min. - $750,000 = $75,000 U 450,000 min. + 800,000 min. x )] ( [( )

Session 4

Session 5

Updated Slides

Session 5

Session 6

Updated Slides

Session 6

Session 7

Updated Slides

Session 7

Session 8

Session 8 Exercise 1 Solution: Break-Even and Special Order A. The break-even point in units is:

Fixed costs: $320,000 (cost of goods sold) + $20,000 (selling and administrative expenses) = $340,000

Variable costs: $800,000 (cost of goods sold) + $100,000 (selling and administrative expenses) = $900,000 total variable costs

Variable cost per unit: $900,000 = $22.50 per unit40,000 units

Contribution margin per unit: $40.00 (selling price per unit) – $22.50 (variable cost per unit) = $17.50 per unit

Break-Even in Units: Total Fixed Costs = $340,000 = 19,429 units Contribution Margin Per Unit $17.50

B. Special order cost analysis:

A special order is a one-time order that is not considered part of the company’s normal ongoing business. To analyze the special order, it is necessary to focus on the relevant costs associated with the decision. Only the incremental revenue and costs are relevant to this decision.

Relevant revenue: Revenue related to special order (6,000 units x $25.00) $150,000 Relevant cost: Cost associated with the special order (Variable costs directly related to producing this order)* Increase in revenue from special order: $ 18,240

131,760

Yes, the special order should be accepted, since the increase in revenue is greater than the increase in costs associated with the order.

*Variable cost per unit for special order:

Original variable cost adjusted for changes to variable cost structure = $22.50 – $0.54 = $21.96 6000 units x $21.96 = $131,760

Session 8

Session 9

Session 10

Session 10 Exercise 4: Profitability Index Section D, Topic 4: Ranking Investment Projects

The Raines Company is evaluating the following three capital investment projects:

Project Cash Inflow Year 0

Cash Inflow Year 1

Cash Inflow Year 2

Present Value of Cash Flows at 10%

A –$100,000 $100,000 $50,000 $132,200 B –50,000 50,000 200,000 210,650 C –50,000 50,000 150,000 169,350

The company has a $100,000 capital rationing limit. Calculate the profitability index for each project and determine which project will generate the most money from the limited capital available.

Note: Round all calculations to two decimal places (e.g., 1.54).

Session 10

Session 10 Exercise 4 Solution: Profitability Index Correct answer: 4.21

The formula to determine profitability index (PI) is:

PV of Future Cash FlowsProfitability Index = Total Initial Investment

Given the following information for the three projects, calculate the profitability index for each one.

Project Investment Present Value of Cash Flows at 10%

Profitability Index

A $100,000 $132,200 B 50,000 210,650 C 50,000 169,350

The profitability index for each project is shown below.

Project Investment Present Value of Cash Flows at 10%

Profitability Index

A $100,000 $132,200 1.32 B 50,000 210,650 4.21 C 50,000 169,350 3.39

Project B has the highest profitability index, with 4.21. But given the capital rationing limit of $100,000, projects B and C can both be recommended over project A because together they have greater net present value and can provide the highest level of return without exceeding the constraint.

Session 11

Updated Slides

These updated slides are being provided to update the CMA Learning System with suggestions received by instructors of the CMA Learning System, and to provide further discussions and clarifications relevant to the content of the CMA Exam. These slides are to provide replacements of those slides that have been requested be updated. In the updates and errata process, it is important to include those suggestions that are deemed necessary and in alignment with the CMA Exam

Session 11

Session 12

NO UPDATED SLIDES

Session 12

CMA Part 2 Slides

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Transcript of CMA Part 2 Slides