COMPREHENSIVE PROBLEM

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 answers to the following questions. A number of assumptions are required; clearly note all assumptions that you make.

Instructions:

(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 labour, and manufacturing overhead) and period costs.

(c) Assign hypothetical monthly dollar figures to the costs you identified in (a) and (b).

(d) Assume you have no raw materials or work in process beginning or ending inventories.

Prepare a projected cost of goods manufactured schedule for the first month of operations.

(e) Project the number of helmets you expect to produce the first month of operations. 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 fgures you assigned accordingly.

(f) What type of cost accounting system will you likely usejob order or process costing?

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

(h) Classify your costs as either variable or fxed costs. For simplicity, assign all costs to either variable or fxed, assuming there are no mixed costs, using the format shown Item Variable Costs Fixed Costs Total Costs .

(i) Compute the unit variable cost, using the production number you determined in (e).

(j) Project the number of helmets you anticipate selling the frst month of operations. 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). You will need to make assumptions for each of the following: Direct materials budget: Quantity of direct materials required to produce one helmet; cost per unit of quantity; desired ending irect materials (assume none).

Direct materials budget: Quantity of direct materials required to produce one helmet; cost 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.

Add Information

Bicycle Helmet Companys selling price is $40.00 per device.

Each helmet requires 1 kilogram (KG) of material, at a unit cost of $7.00 per kg, to produce.

It takes 0.35 direct labor hours to produce one helmet, at a unit price of $20 per hour.

Income tax expense is 45% of income from operation.

The types of manufacturing and period costs that would be incurred in making helmet, and assumed total dollar amounts are as follows:

Rent on production equipment: $6,000

Insurance on factory building: $1,500

Raw Materials: $70,000

Utility costs for the factory: $900

Office supplies: $300

Direct labor: $70,000

Depreciation on office equipment: $800

Miscellaneous manufacturing items: $1,000

Administrative salaries: $15,500

Property taxes on factory building: $400

Advertising for the Helmets: $11,000

Sales commissions: $40,000

Depreciation on factory building: $1,500

Professional fees: $500

Research and development: $10,000

Other information

(L) Prepare operating Budgets:

Sales Budget (8000 units)

Production budget: Desired ending finished goods units: 2,000

Beginning finished goods units: 0

Direct Materials Budget: unit to be produced: 10,000

DM/unit: 1KG

Cost per KG: $7

Desire ending DM= 0

Direct Labor Budget: Direct labor time (hours) per unit: 0.35

Direct labor cost per hour: $20

Selling and Administrative Expenses budget.

Budgeted Income Statement.

(m) Prepare:

Cash budget

(n) Prepare:

Monthly flexible manufacturing costs budget

PLEASE! I need the answer to the letter (L) Budgeted Income Statement, Manufacturing Overhead Budget,

(m) Cash Budget, (n) Monthly Flexible Manufacturing Budget (p) (q)

Thank you!