Project Description:

prepare items (a) - (q).

use the data that i have provided here.

relevant data for the bicycle helmet company --


production and sales data is provided for the month of december, 2012. (you should assume that operations are beginning on dec. 1. this means that your opening cash balance as of dec. 1 is $0.)

you would like to start a business manufacturing a unique model of bicycle helmet. in preparation for an interview with the bank to discuss your financing needs, you develop answer to the following questions. a number of assumptions are required; clearly note all assumptions that you make.

(a) identify the types of costs that would likely be involved in making this product.
(b) set up five columns as indicated.

product costs
direct direct manufacturing
item materials labor overhead period costs

classify the costs you identified in (a) into the manufacturing cost classifications of product costs (direct materials, direct labor, and manufacturing overhead) and period costs.

(c) hypothetical monthly dollar figures of costs identified in (a) and (b).
product and period costs:
rent on production equipment -- $6000
insurance on building -- 1500
raw materials (plastics, polystyrene, etc.) -- 60000
utility costs -- 900
office supplies -- 300
wages -- 65000
depreciation on office equipment -- 800
miscellaneous -- 1000
administrative salaries -- 15500
property taxes on building -- 400
advertising for helmets -- 11000
sales commissions -- 40000
depreciation on building -- 1500
professional fees* -- 500
research and development -- 10000
*professional fees could involve legal, accounting, etc.

(d) assume you have no raw materials or work in process beginning or ending inventories. prepare a projected costs of goods manufactured schedule for the first month of operations.

(e) bicycle helmet company expects to produce 10,000 helmets in december 2012. compute the cost to produce one bicycle helmet. review the result to ensure it is reasonable; if not, return to part (c) and adjust the monthly dollar figures you assigned accordingly.

(f) what type of cost accounting system will you likely use-job order or process costing? be sure to explain why.

(g) explain how you would assign costs in either job order or process costing system you plan to use.

(h) classify your costs as either variable or fixed costs. for simplicity, assign all costs to either variable or fixed, assuming there are no mixed costs, using the format shown.

item variable costs fixed costs total costs

(i) compute the unit variable costs, using the production number you determined in (e).

(j) bicycle helmet company expects to sell 9,000 helmets in december 2012. set a unit selling price, and compute both the contribution margin per unit and the contribution margin ratio.

(k) determine your break-even point in dollars and in units.

(l) prepare projected operating budgets (sales, production, direct materials, direct labor, manufacturing overhead, selling and administrative expense, and income statement). assumption are below, use data provided.

direct materials budget: quantity of direct materials required to produce one helmet; costs per unit of quantity; desired ending direct materials (assume none).
direct labor budget: direct labor time required per helmet; direct labor cost per hour.
budgeted income statement: income tax expense is 45% of income from operations.

expected sales price -- $50/helmet
quantity of direct materials required to product one helmet -- 1 kilogram
direct material costs -- $6/kilogram
direct labor time required per helmet -- 30 minutes
direct labor cost -- $13/hour

(m) prepare a cash budget for the month. assume the percentage of sales that will be collected from customers is 75%, and the percentage of direct materials that will be paid in the current month is 75%
the income taxes for december 2012 will not be paid until sometime in 2013.

(n) determine a relevant range of activity, using the number of helmets produced as your activity index. recast your manufacturing overhead budget into a flexible monthly budget for two additional activity levels.
the flexible budget must be prepared at production levels of 8000, 9000, and 10000 units. this problem asks for a manufacturing o/h flexible budget. however, it would be more helpful to management for you to provide a total manufacturing costs budget that includes raw materials and wages, the significant variable costs in the system.

(o) identify one potential cause of materials, direct labor, and manufacturing overhead variances for your product.

(p) assume that you wish to purchase production equipment that costs $720,000. determine the cash payback period, utilizing the monthly cash flow that you computed in part (m) multiplied by 12 months (for simplicity).

(q) identify any nonfinancial factors that should be considered before commencing your business venture.
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