HEL Armstrong Helmet Company Developed by Dick Wasson, Southwestern College The Business Situation 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 bused 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 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 costs--factory 900 Wager-factory 70,000 Work in process, December 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 8.000 Production and Sales Data Number of helmets produced 10,000 Expected sales in units for December ($40 unit sales price) 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 57 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 Item 1. Classify the costs as either 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 Product Costs Direct Direct Manufacturing Materials Labor Overhead Period Costs 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 cach classiti cation. Use the format shown below. Assume that Utility costs-factory are a fixed cost Variable Fixed Total Item Costs Costs Costs 3. Prepare a schedule of cost of goods manufactured for the month of December 2013 4. Determine the cost of producing a helmet. 5. Compute the unit variable cost for a helmet. 6. Compute the unit contribution margin and the contribution margin ratio 7. Calculate the break-even point in units and in sales dollars. 8. Compute the margin of safety and margin of safety ratio
