Accounting: Variable Cost and New Equipment
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 – Factory Building 1,500
Depreciation – Office Equipment 800
Insurance – Factory Building 1,500
Miscellaneous expenses - Factory 1,000
Office supplies expense 300
Professional Fees 500
Property Taxes - Factory Building 400
Raw material used 70,000
Rent on production equipment 6,000
Research & development 10,000
Sales commission 40,000
Utility Costs - Factory 900
Wages - Factory 70,000
Work in process – Dec 1 0
Work in process – Dec 31 0
Raw materials inventory, Dec 1 0
Raw materials inventory, Dec 31 0
Raw materials purchases 70,000
Finished goods inventory, Dec 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 labour hours per unit .35
Direct labor hourly rate $20Cash 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
Cost Items and Account Balances $
Administrative salaries 15,500
Advertising for helmets 11,000
Cash , December 1 0
Depreciation – Factory Building 1,500
Depreciation – Office Equipment 800
Insurance – Factory Building 1,500
Miscellaneous expenses - Factory 1,000
Office supplies expense 300
Professional Fees 500
Property Taxes - Factory Building 400
Raw material used 70,000
Rent on production equipment 6,000
Research & development 10,000
Sales commission 40,000
Utility Costs - Factory 900
Wages - Factory 70,000
Work in process – Dec 1 0
Work in process – Dec 31 0
Raw materials inventory, Dec 1 0
Raw materials inventory, Dec 31 0
Raw materials purchases 70,000
Finished goods inventory, Dec 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 labour hours per unit .35
Direct labor hourly rate $20Cash 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