HELMENS ARMST 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 based on that information. The information provided to each candidate is as follows. Cost Items and Account Balances Administrative salaries $15,500 11.000 Advertising for helmets Cash, December 1 Depreciation on factory building Depreciation on office equipment Insurance on factory building Miscellancous expenses-factory Office supplies expense Professional fees Property taxes on factory building Raw materials used -0- 1,500 800 1,500 1,000 300 500 400 70.000 Rent on production equipment Rescarch and development Sales commissions Utility costs-factory Wages-factory Work in process, December 1 Work in process, December 31 Raw materials inventory, December 1 Raw materials inventory, December 31 Raw material purchases Finished goods inventory, December 1 6,000 I0,000 40,000 900 70,000 0- -0- -0- -0 70.000 -0- COMPA ONLS Production and Sales Data Number of helmets produced Expected sales in units for December ($40 unit sales price) Expected sales in units for January Desired ending inventory Direct materials per finished unit Direct materials cost Direct labor hours per unit Direct labor hourly rate 10,000 8,000 10.000 20% of next month's sales 1 kilogram $7 per kilogram 35 $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 incured. Desired ending cash balance: $30,000. Instructions Using the data presented above (inchuding data on page CA-27), do the following 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 Materials Manufacturing Overhead Direct Item Labor 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 classifi cation, Use the format shown below. Assume that Utility costs-factory are a fixed cost Variable Costs Fixed Total Item 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. Identify the type of cost accounting system that Armstrong Helmet Company is prob- ably using at this time. Explain. 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 id) Direct labor (e) Selling and administrative expenses. (DCash (g) Budgeted income statement