Question
*THE BUSINESS CASE* Armstrong Helmet Company manufactures a unique model of bicycle helmet. The company began operations December 1, 2013. Its accountant quit the second
*THE BUSINESS CASE* 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 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.
cost of goods manufactured- $151,300
production cost per helmet- $15.13
unit variable cost- $18.10
Contribution margin per unit- $21.90
contribution margin ratio- 54.75$
breakeven point in dollars- $88,401.83
breakeven in units- 2210
**INSTRUCTIONS!** Using the data presented above (including data on page CA-27), do the following.
10. Prepare the following budgets for the month of December 2013. (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 over head variances in the production of the helmet.
13. determine the cash payback period on the proposed production equipment purchase: assuming a monthly cash flow as indicated in the cash budget.
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