In: Accounting
mstrong 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 expenses—factory $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 costs—factory $900
Wages—factory $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% 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 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 dollare amount of each cost in the approriate column and total each classification. Use the format shown below
Item Variable Cost Fixed costs Total costs
11. Prepare a flexible budget for manufacuring costs for activity levels between 8000 and 10000 units, in 1000 unit increments.
12. identify one potential cause of direct materials, direct labor, and manufacturing over head variances in the production of the helmet.
Answer 2. | |||
Variable Costs | Fixed Costs | Total Costs | |
Administrative salaries | - | 15,500.00 | 15,500.00 |
Advertising for helmets | - | 11,000.00 | 11,000.00 |
Depreciation on factory building | - | 1,500.00 | 1,500.00 |
Depreciation on office equipment | - | 800.00 | 800.00 |
Insurance on factory building | - | 1,500.00 | 1,500.00 |
Miscellaneous expenses—factory | 1,000.00 | - | 1,000.00 |
Office supplies expense | - | 300.00 | 300.00 |
Professional fees | - | 500.00 | 500.00 |
Property taxes on factory building | - | 400.00 | 400.00 |
Raw materials used | 70,000.00 | - | 70,000.00 |
Rent on production equipment | - | 6,000.00 | 6,000.00 |
Research and development | - | 10,000.00 | 10,000.00 |
Sales commissions | 40,000.00 | - | 40,000.00 |
Utility costs - Factory | - | 900.00 | 900.00 |
Wages—factory | 70,000.00 | - | 70,000.00 |
Total Costs | 181,000.00 | 48,400.00 | 229,400.00 |
Answer 11. | |||
Flexible Budget | |||
For Manufacturing Costs | |||
8,000 Units | 9,000 Units | 10,000 Units | |
Raw materials used | 56,000.00 | 63,000.00 | 70,000.00 |
Wages—factory | 56,000.00 | 63,000.00 | 70,000.00 |
Factory Overhead | |||
Miscellaneous expenses—factory | 800.00 | 900.00 | 1,000.00 |
Depreciation on factory building | 1,500.00 | 1,500.00 | 1,500.00 |
Insurance on factory building | 1,500.00 | 1,500.00 | 1,500.00 |
Miscellaneous expenses—factory | 1,000.00 | 1,000.00 | 1,000.00 |
Property taxes on factory building | 400.00 | 400.00 | 400.00 |
Rent on production equipment | 70,000.00 | 70,000.00 | 70,000.00 |
Research and development | 6,000.00 | 6,000.00 | 6,000.00 |
Utility costs - Factory | 10,000.00 | 10,000.00 | 10,000.00 |
Total Costs | 203,200.00 | 217,300.00 | 231,400.00 |
Answer 12. | |||
Potential Causes for Direct Material Variance: | |||
Inferior Quality Material used, changes in the purchase price of direct materials, unusual discounts received, unskillied labor or inaccurate standards. | |||
Potential Causes for Direct Labor variance: | |||
Difference in actual wage rate and standard wage rate, unanticipated overtime, increase in wages due to employment to highly skilled labor, poor supervision etc. | |||
Potential Causes for Variable Overhead variance: | |||
Diference in actual and statndard rate, decrease or increase in suppplier prices, less or more usage of indirect raw materials, labor or lubricants etc. |