10. (g) ARMSTRONG HELMET COMPANY Budgeted Income Statement For the Month Ended December 31, 2006 Sales Cost of goods sold Gross profit Selling and administrative expenses Income from operations Income tax expense Net income ARMSTRONG HELMET COMPANY Monthly Flexible Manufacturing Costs Budget For the Month Ended December 31, 2006 Activity level Production in units Variable costs Raw materials Wages Miscellaneous Total variable costs Fixed costs Total fixed costs Total costs 13. 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, budgets, 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-factory 1,000 Office supplies expense 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 Sales commissions 40,000 Utility costs-factory 900 Wages-factory 70,000 Work in process, December 1 -0- Work in process, December 31 Raw materials inventory, December 1 Raw materials inventory, December 31 -0- Raw material purchases 70,000 Finished goods inventory, December 1 300 ******* TTTT -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 .35 Direct labor hourly rate $20 Cash Flow Data Cash collections from customers: 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 proposed production equipment: $720,000. Manufacturing overhead and selling and administrative costs are paid as incurred. Desired ending cash balance: $30,000. as Direct Materials Product Costs Direct Manufacturing Labor Overhead Item Period Costs - Sync Lee the format chauum bal l assif s t. a Variable Costs Fixed Costs Total Costs Item 3. Prepare a schedule OI CONIUE SOUS eine at this time Teli 6. Under what circumstances might Armstrong use a different 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). 10. (a) ARMSTRONG HELMET COMPANY Sales Budget For the Month Ended December 31, 2006 Expected unit sales Unit selling price Total sales 10. (b) ARMSTRONG HELMET COMPANY Production Budget For the Month Ended December 31, 2006 Expected unit sales Add: Desired ending finished goods units Total required units Less: Beginning finished goods units Required production units 10. (C) ARMSTRONG HELMET COMPANY Direct Materials Budget For the Month Ended December 31, 2006 Units to be produced Direct materials per unit Total kilograms needed for production Add: Desired ending direct materials (kilograms) Total materials required Less: Beginning direct materials (kilograms) Direct materials purchases Cost per kilogram Total cost of direct materials purchases 10. (d) ARMSTRONG HELMET COMPANY Direct Labor Budget For the Month Ended December 31, 2006 Units to be produced Direct labor time (hours) per unit Total required direct labor hours Direct labor cost per hour Total direct labor cost 10. (e) ARMSTRONG HELMET COMPANY Selling And Administrative Expenses Budget For the Month Ended December 31, 2006 Variable expenses Sales commissions Total variable Fixed expenses Administrative salaries Advertising for helmets Depreciation on office equipment Office supplies expense Research and development Professional fees Total fixed Total selling and administrative expenses 10. (f) ARMSTRONG HELMET COMPANY Cash Budget For the Month Ended December 31, 2006 Beginning cash balance Add: Receipts Collections from customers Total receipts Total available cash Less: Disbursements Direct materials Direct labor Manufacturing overhead Selling and administrative expenses Total disbursements Excess (deficiency) of available cash over disbursements Financing: Borrowing Ending cash balance