Rainy Day Company The Business Situation Rainy Day Company manufactures a unique umbrella. The company began operations April 1, 2020. 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 $11,250 Advertising 15,250 Cash, April 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, April 1 0 Work in process, April 30 0 Raw materials inventory, April 1 0 Raw materials inventory, April 30 0 Raw material purchases 70,000 Finished goods inventory, April 1 0 Production and Sales Data Number of umbrellas produced 10,000 Expected sales in units for April ($40 unit sales price) 8,000 Expected sales in units for May 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. 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 Item 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 each classification. Use the format shown below. Assume that Utility costsfactory are a fixed cost and Miscellaneous expenses factor are a variable cost. Variable Fixed Total Item Costs Costs Costs 3. Prepare a schedule of cost of goods manufactured for the month of April 2020. 4. Determine the cost of producing an umbrella. 5. Identify the type of cost accounting system that Rainy Day Company is probably using at this time. Explain. 6. Under what circumstances might Rainy Day use a different cost accounting system? 7. Compute the unit variable cost for an umbrella. 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 April 2020. (a) Sales. (b) Production. (c) Direct materials. (d) Direct labor. (e) Selling and administrative expenses. (f) Cash. (g) Budgeted income statement. 11. Prepare a flexible budget for manufacturing costs for activity levels between 8,000 and 10,000 units, in 1,000-unit increments. 12. Identify one potential cause of direct materials, direct labor, and manufacturing overhead variances in the production of the umbrella. 13. Determine the cash payback period on the proposed production equipment purchase, assuming a monthly cash flow as indicated in the cash budget (requirement 10f).