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 company 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 recommendations 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 expensesfactory $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

Sales commissions $40,000

Utility costsfactory $900

Wagesfactory $70,000

Work in process, December 1 $0

Work in process, December 31 $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 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

Questions

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

12) Indentify one potention cause of direct materials,direct labor and manufavcturing overhead variances in the production of the helments

Budget Information

	Sales Budget
	Expected unit sales	8000
	Unit sale price	40
	Total Sales	320000
	Production
	Units to be Produced	10000
	Direct Materials per unit	1
	Total KG needed	10000
	Total Material required	10000
	Beginning Materials	0
	Direct Materials purchases	10000
	Cost per KG	7
	Total cost of direct material purchases	70000
	Direct Labor
	Units to be produced	10000
	Direct labor time per unit	0.35
	Total Labor Hours	35000
	Direct Labor cost per hour	20
	Total direct labor cost	70000

	Selling and Administrative expenses
	Variable expenses Sales commission	40000
	Total Variable	40000
	Fixed expenses
	Administrative salaries	15500
	advertisement	11000
	Deprecation on office equipment	800
	Office supplies expense	300
	R&D	10000
	Profession Fees	500
	Total	38100
	Total Selling and Administrative Expenses	78100

	Cash		0
	Beginning Cash	0
	Collection from customers	240000
	Total	240000
	Disbursement
	Direct Materials ( 75 % )	52500
	Direct Labor	70000
	Manufacturing overhead	9800
	Selling and administrative expenses	77300
	Excess cash available	30400
	Finance borrowing	0
	Ending cash balance	30400

	Budget Income statement
	Sales	320000
	Cost of goods sold	121040
	Gross profit	198960
	Selling and Admin expenses	78100
	Income from operations	120860
	Income tax expense 45 %	54387
	Net income	66473