Armstrong Helmet Company manufactures a unique model of bicycle helmet. The company began operations December 1,2013. Its accountant quit the second week of operations, and the company is searching for a replacement. The com-pany has decided to test the knowledge and ability of all candidates interviewing for the position. Each candidate will be provided with the information below and then asked to prepare a series of reports, schedules, budgeLs, and recommenda-tions based on that information. The information provided to each candidate is as follows.

Cost Items and Account Balances

Administrative salaries??????????..................???.$15,500

Advertising for helmets????????????.......................11,000

Cash, December 1??????????????.?..?........................-0-

Depreciation on factory building????????.??.............1,500

Depreciation on office equipment????????..?...............800

Insurance on factory building?????????..??.............1,500

Miscellaneous expenses?factor????????.??...........1,000

Office supplies expense?????????????.....................300

Professional fees?????????????????....................500

Property taxes on factory building??????...??..?........ 400

Raw materials used???????????................???...70,000

Rent on production equipment??????..???..........?.6,000

Research and development???????..????............10,000

Saks commissions?????????.??????.................40,000

Utility costs?factory?????????.???.................???.900

Wages?factory??????????.??????..................70,000

Work in process, December 1?????.???????.............-0-

Work in process, December 11????????.????..........-0-

Raw materials inventory, December 1?????.????.......-0-

Raw materials inventory, December 31??????.??.......-0-

Raw material purchases?????????????..........70,000

Finished goods inventory, December 1????????...?-0-

Production and Sales Data

Number of helmets produced????????......??..10,000

Expected sales in units for December

($40 unit sales price)????????............??????..8,000

Expected sales in units for January????....????..10,000

Desired ending inventory????..20% of next month's sales

Direct materials per finished unit???????....1 kilogram

Direct materials cost???????????$7 per kilogram

Direct labor hours per unit????????????.?0.35

Direct labor hourly rate??????????????...$20

Cash Flow Data

Cash collections from cutstomers: 75% in month of sale and 25% the following month.

Cash payments to suppliers: 75% in month of purchase and 25% the following month.

Income tax rate: 45%

Cost of production equipment: $720,000.

Manufacturing overhead and selling and adminstrative costs are paid as incurred.

Desired ending cash balanace: $30,000.

Instruction

1. Classify the costs as wither product costs or period costs using a five-column table as shown below Enter the dollar amount of each cost in the appropriate column and total each classification.

2. Classify the costs as either variable or fixed costs. Assume there are no mixed costs. Enter the dollar amount of each cost in the appropriate column and total each classification. Use the format shown below. Assume that Utility costs-factory are a fixed are a fixed cost.

3. Prepare a schedule of cost of goods manufactured for the month of December 2013.

4. Determine the cost of producing a helmet.

5. Identify the type of cost accounting system that Armstrong Helmet Company is probably using at this time. Explain.

6. Under what circumstances might Armstrong use a differecnt cost accounting system?

7. Compute the unit variable cost for a helmet.

8. Compute the unit contribution margin and the contribution margin ratio.

9. Calculate the break-even point in units and in sales dollars.

10. Prepare the following budgets for the month of December 2013.

(a) Sales.

(b) Production.

(c) Direct materials.

(d) Direct labor.

(e) Selling and administrative expenses.

(f) Cash.

(g) Budgeted income statement.

11. Prepare a flexible budget for manufacturing costs for activity levels between 8,000 and 10,000 units, in 1,000-unit increments.

12. Identify one potential cause of direct materials, direct labor, and manufacturing over-head variances in the production of the helmet.

13. Determine the cash payback period on the proposed production equipment purchase, assuming a monthly cash flow as indicated in the cash budget (requirement 10f).

Item Direct Materials Product Costs Direct Labor Manufacturing Overhead Period Costs Item Variable Costs Fixed Costs Total Costs