Cycling Galore Company Part One: Hiring an Accountant The Business Situation Cycling Galore Company manufactures a unique model of bicycle helmet. The company began operations December 1, 2018. 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 months 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. Instructions Using all the data presented above, do the following. Part Two: Adding a New Product The Business Situation The management of Cycling Galore Company is concerned about relying on the sales of only one type of bicycle helmet. It is considering producing and selling a second and less expensive model. As early as February 2019, the company could produce as many as 5,000 inexpensive helmets without expanding the factory, buying more equipment, or increasing any other fixed costs. At a production volume of 4,000 or 5,000 inexpensive helmets, direct labor costs would rise by 24% and 30% respectively over current conditions. Raw materials for a single inexpensive helmet would be approximately 60% of the raw materials cost for the original helmet model. Sales commissions for both helmets are calculated as a percent of the sales price. Cycling Galore anticipates monthly sales of 4,000 inexpensive helmets. The desired inventory on February 28, 2019 is 800 inexpensive helmets. 1. What incremental profit will Cycling Galore earn in February 2019 if it produces and sells inexpensive helmets? Assume 10,000 original helmets will be sold in February and subsequent months. 2. If Cycling Galore sells 10 original helmets for each 4 inexpensive helmets it sells, how many of each helmet must it sell per month to earn a monthly profit of $15,000? 3. Cycling Galore can pay USA Cycling $50,000 a year to put their logo on all helmets Cycling Galore produces. Cycling Galore believes it could increase its sales prices by 10% with no reduction in sales volume if their helmets have the USA Cycling log. Should Cycling Galore pay the $50,000 annual fee?