*THE BUSINESS CASE*
Armstrong Helmet Company manufactures a unique model of bicyclehelmet. The company began operations December 1, 2013. Itsaccountant quit the second week of operations, and the company issearching for a replacement. The company has decided to test theknowledge and ability of all candidates interviewing for theposition. Each candidate will be provided with the informationbelow and then asked to prepare a series of reports, schedules,budgets, and recommendations based on that information. Theinformation 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 expensesâfactory $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 costsâfactory $900
Wagesâfactory $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 month's sales
Direct materials per finished unit: 1 kilogram
Direct materials cost: $7 per kilogram
Direct labor hours per unit: 0.35
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% thefollowing month.
Income tax rate: 45%.
Cost of proposed production equipment: $720,000.
Manufacturing overhead and selling and administrative costs arepaid as incurred. Desired ending cash balance: $30,000.
**INSTRUCTIONS!**
Using the data presented above, do the following...
2. Classify the costs as either variable or fixed costs.Assume there are no mixed costs. Enter the dollar amount of eachcosts in the appropriate column and toal each classification. usethe format show below. Assume that utility costs - factory costsare fixed.
Item Variable costs Fixed costs Total Costs
11. Prepare a flexible budget for manufacturing costs foractivity levels between 8,000 and 10,000 units, in 1,000-unitincrements.
12. Identify one potential cause of direct materials, directlabor and manufacturing overhead variances in the production of thehelment.
*THE BUSINESS CASE*
Armstrong Helmet Company manufactures a unique model of bicyclehelmet. The company began operations December 1, 2013. Itsaccountant quit the second week of operations, and the company issearching for a replacement. The company has decided to test theknowledge and ability of all candidates interviewing for theposition. Each candidate will be provided with the informationbelow and then asked to prepare a series of reports, schedules,budgets, and recommendations based on that information. Theinformation 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 expensesâfactory $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 costsâfactory $900
Wagesâfactory $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 month's sales
Direct materials per finished unit: 1 kilogram
Direct materials cost: $7 per kilogram
Direct labor hours per unit: 0.35
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% thefollowing month.
Income tax rate: 45%.
Cost of proposed production equipment: $720,000.
Manufacturing overhead and selling and administrative costs arepaid as incurred. Desired ending cash balance: $30,000.
**INSTRUCTIONS!**
Using the data presented above, do the following...
2. Classify the costs as either variable or fixed costs.Assume there are no mixed costs. Enter the dollar amount of eachcosts in the appropriate column and toal each classification. usethe format show below. Assume that utility costs - factory costsare fixed.
Item Variable costs Fixed costs Total Costs
11. Prepare a flexible budget for manufacturing costs foractivity levels between 8,000 and 10,000 units, in 1,000-unitincrements.
12. Identify one potential cause of direct materials, directlabor and manufacturing overhead variances in the production of thehelment.
