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 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. 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%. Cast 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 the data presented above (including 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. sts 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 costs-factory are a fixed cost. ItemCostsVarlableCostsFixedCostsTotal 3. Prepare a schedule of cost of goods manulfactured 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 probably 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 dollar. 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 ff exible 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 helmet. ARMSTRONG HELMET COMPANY Cost of Goods Manufactured Schedule Question Answer 4 [XXX] 5 [XXX] 6[XXX] 7 [XXX] 8[XXX] 9 [XXX] ARMSTRONG HELMET COMPANY Sales Budget For the Month Ended December 31, 2013 Expected Sales Multiply by: Unit Price Total Sales ARMSTRONG HELMET COMPANY Production Budget For the Month Ended December 31, 2013 expected sales Add: Expected Closing Inventory Total Inventory Less: Opening Inventory Required production units \begin{tabular}{|c|} \hline 8,000 \\ \hline 2,000 \\ \hline 1,000 \\ \hline- \\ \hline 1,000 \\ \hline \hline \end{tabular} ARMSTRONG HELMET COMPANY Direct Materials Budget For the Month Ended December 31, 2013 \begin{tabular}{l|r|} \hline Production Budget & 10,000 \\ \hline Multiply by: Direct materials per finished units & 1kg \\ \hline Total [XXX] & {[XXX]} \\ \hline Add: [XXX] & 7 \\ \hline Total materials required & {[XXX]} \\ Less: [XXX] & {[XXX]} \\ \hline Direct materials purchases & {[XXX]} \\ \hline Multiply by: [XXX] & {[XXX]} \\ \hline Total cost of direct materials purchases & {[XXX]} \\ \hline \end{tabular} ARMSTRONG HELMET COMPANY Direct Labor Budget ARMSTRONG HELMET COMPANY Selling and Administrative Expenses Budget [XXX] \begin{tabular}{|lr|} \hline Variable Expenses & \\ \hline[XXX] & {[XXX]} \\ \hline Total Variable Expenses & {[XXX]} \\ \hline Fixed Expenses & \\ \hline[XXX] & {[XXX]} \\ {[XXX]} & {[XXX]} \\ {[XXX]} & {[XXX]} \\ {[XXX]} & {[XXX]} \\ {[XXX]} & {[XXX]} \\ {[XXX]} & {[XXX]} \\ \hline Total Fixed Expenses & {[XXX]} \\ \hline Total Selling \& Admin Expenses & {[XXX]} \\ \hline \end{tabular} ARMSTRONG HELMET COMPANY Cash Budget For the Month Ended December 31, 201 ARMSTRONG HELMET COMPANY Budgeted Income Statement \begin{tabular}{llr} & {[XXX]} & \\ \hline[XXX] & {[XXX]} \\ {[XXX]} & {[XXX]} \\ \hline Gross Profit & {[XXX]} \\ Less: [XXX] & {[XXX]} \\ \hline Income from Operations & {[XXX]} \\ Less: [XXX] & {[XXX]} \\ \hline Net Income & {[XXX]} \\ \hline \end{tabular} ARMSTRONG HELMET COMPANY Monthly Flexible Manufacturing Costs Budget [XXX] \begin{tabular}{|l|l|l|l|} \hline Activity Level & & & \\ \hline Production in Units & 8,000 & 9,000 & 10,000 \\ \hline Variable Costs & & & \\ \hline[XXX] & {[XXX]} & & {[XXX]} \\ \hline[XXX] & {[XXX]} & & {[XXX]} \\ \hline[XXX] & {[XXX]} & & {[XXX]} \\ \hline Total Variable Costs & {[XXX]} & {[XXX]} & {[XXX]} \\ \hline Fixed Costs & {[XXX]} & {[XXX]} & {[XXX]} \\ \hline Total Costs & {[XXX]} & {[XXX]} & {[XXX]} \\ \hline \end{tabular} Question Answer 12[XXX] 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 scarching 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. 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 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. 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%. Cast 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 the data presented above (including 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. sts 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 costs-factory are a fixed cost. ItemCostsVarlableCostsFixedCostsTotal 3. Prepare a schedule of cost of goods manulfactured 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 probably 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 dollar. 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 ff exible 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 helmet. ARMSTRONG HELMET COMPANY Cost of Goods Manufactured Schedule Question Answer 4 [XXX] 5 [XXX] 6[XXX] 7 [XXX] 8[XXX] 9 [XXX] ARMSTRONG HELMET COMPANY Sales Budget For the Month Ended December 31, 2013 Expected Sales Multiply by: Unit Price Total Sales ARMSTRONG HELMET COMPANY Production Budget For the Month Ended December 31, 2013 expected sales Add: Expected Closing Inventory Total Inventory Less: Opening Inventory Required production units \begin{tabular}{|c|} \hline 8,000 \\ \hline 2,000 \\ \hline 1,000 \\ \hline- \\ \hline 1,000 \\ \hline \hline \end{tabular} ARMSTRONG HELMET COMPANY Direct Materials Budget For the Month Ended December 31, 2013 \begin{tabular}{l|r|} \hline Production Budget & 10,000 \\ \hline Multiply by: Direct materials per finished units & 1kg \\ \hline Total [XXX] & {[XXX]} \\ \hline Add: [XXX] & 7 \\ \hline Total materials required & {[XXX]} \\ Less: [XXX] & {[XXX]} \\ \hline Direct materials purchases & {[XXX]} \\ \hline Multiply by: [XXX] & {[XXX]} \\ \hline Total cost of direct materials purchases & {[XXX]} \\ \hline \end{tabular} ARMSTRONG HELMET COMPANY Direct Labor Budget ARMSTRONG HELMET COMPANY Selling and Administrative Expenses Budget [XXX] \begin{tabular}{|lr|} \hline Variable Expenses & \\ \hline[XXX] & {[XXX]} \\ \hline Total Variable Expenses & {[XXX]} \\ \hline Fixed Expenses & \\ \hline[XXX] & {[XXX]} \\ {[XXX]} & {[XXX]} \\ {[XXX]} & {[XXX]} \\ {[XXX]} & {[XXX]} \\ {[XXX]} & {[XXX]} \\ {[XXX]} & {[XXX]} \\ \hline Total Fixed Expenses & {[XXX]} \\ \hline Total Selling \& Admin Expenses & {[XXX]} \\ \hline \end{tabular} ARMSTRONG HELMET COMPANY Cash Budget For the Month Ended December 31, 201 ARMSTRONG HELMET COMPANY Budgeted Income Statement \begin{tabular}{llr} & {[XXX]} & \\ \hline[XXX] & {[XXX]} \\ {[XXX]} & {[XXX]} \\ \hline Gross Profit & {[XXX]} \\ Less: [XXX] & {[XXX]} \\ \hline Income from Operations & {[XXX]} \\ Less: [XXX] & {[XXX]} \\ \hline Net Income & {[XXX]} \\ \hline \end{tabular} ARMSTRONG HELMET COMPANY Monthly Flexible Manufacturing Costs Budget [XXX] \begin{tabular}{|l|l|l|l|} \hline Activity Level & & & \\ \hline Production in Units & 8,000 & 9,000 & 10,000 \\ \hline Variable Costs & & & \\ \hline[XXX] & {[XXX]} & & {[XXX]} \\ \hline[XXX] & {[XXX]} & & {[XXX]} \\ \hline[XXX] & {[XXX]} & & {[XXX]} \\ \hline Total Variable Costs & {[XXX]} & {[XXX]} & {[XXX]} \\ \hline Fixed Costs & {[XXX]} & {[XXX]} & {[XXX]} \\ \hline Total Costs & {[XXX]} & {[XXX]} & {[XXX]} \\ \hline \end{tabular} Question Answer 12[XXX] 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 scarching 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