Mercury Equipment Company manufactures a unique model of hospital goggles. The company began operation in 2016. They are searching for an accountant and decided to test the knowledge and ability of applicants in the position. All applicants are provided with the information below and then they will be asked to prepare series of reports. schedules, budgets and recommendations based on the information. The information provided to each applicant is as follows:

COST ITEMS	ACCOUNT BALANCES
Administrative salaries	15,500.00
Advertising	11,000.00
Cash balance beginning	-
Depreciation- factory building	1,500.00
Depreciation- office equipment	800.00
Insurance -factory	1,500.00
Miscellaneous expense -factory	1,000.00
Office supplies expense	300.00
Professional fees	500.00
Property taxes- factory	400.00
Raw materials used	70,000.00
Rent on production equipment	6,000.00
Research and development	10,000.00
Sales commissions	40,000.00
Utilities- factory	900.00
Wages- factory	70,000.00
Work in process beginning	-
Work in process ending	-
Raw materials inventory beginning	-
Raw materials inventory ending	-
Raw materials purchases	70,000.00
Finished goods - beginning	-
PRODUCTION AND SALES DATA
Nos. of goggles produced	10,000.00
Expected sales in units in 2016 SP- 40.00	8,000.00
Expected sales in units for 2017	10,000.00
Desired ending inventory	20% of next year’s sales
Direct materials per finished unit	1 kilogram
Direct materials cost	7.00 per kilogram
Direct labor hours per unit	0.35
Direct labor hourly rate	20.00

Cost Flow Data

Cash collections from customers: 75% in the month of sale and 25% in the following month. Cash payments to suppliers: 75% in the month of purchase and 25% the following month. Income tax rate: 45%. Cost of proposed production equipment: 720,000.00. Manufacturing overhead and selling/ Adm. Cost are paid as incurred. Desired ending cash balance: 30,000.00

Instructions:

Using the above information, Prepare the following:

1. Classify the costs as either product cost or period cost or product cost using a five column table as shown below. Enter the amount of its cost in the appropriate column and total each classification.

		product cost
	direct	direct	mfg.	period
item	material	labor	overhead	Cost

1. Classify the costs as either fixed or variable cost. Assume no mixed costs. Enter the amount of its cost in the appropriate column and total each classification. Use the format shown below. Assume Utilities- factory as fixed cost.

	variable	fixed	total
item	cost	cost	cost

1. Prepare a schedule of cost of goods manufactured for 2016
2. Determine the cost producing a goggle.
3. Determine the type of cost accounting system that the company is probably using at this time. Discuss / Explain
4. Under what circumstances might the company use a different cost accounting system?
5. Compute the unit variable cost for a goggle.
6. Compute the unit contribution margin and the contribution margin ratio.
7. Compute the break- even point in units and in sales pesos
8. Prepare the following budget for the year
9. Sales
10. Production
11. Direct materials
12. Direct labor
13. Selling and administrative expense
14. Cash
15. Budgeted Statement of income
16. Prepare a flexible budget for manufacturing cost for activity levels between 8000 and 10000 units, in 1000 unit increments.
17. Identify one potential cause of direct materials, direct labor and manufacturing overhead variances in the production of goggles.
18. Determine the cash payback period on the proposed production equipment purchased assuming a cash flow as indicated in the cash budget.