Armstrong Helmet Company

The Business Situation
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.

Classify the costs as either variable or fixed costs. Assume there are no mixed costs. Enter the dollar amount of each cost in the appropriate column and total each classification. Use the format shown below. Assume that Utility costs—factory are a fixed cost.

Variable Fixed Total

Item Costs Costs Costs
Prepare a schedule of cost of goods manufactured for the month of December 2013.
Determine the cost of producing a helmet.
Identify the type of cost accounting system that Armstrong Helmet Company
is probably using at this time. Explain.
Under what circumstances might Armstrong use a different cost accounting system?
Compute the unit variable cost for a helmet.
Compute the unit contribution margin and the contribution margin ratio.
Calculate the break-even point in units and in sales dollars.
Prepare the following budgets for the month of December 2013. (a) Sales.
Prepare a flexible budget for manufacturing costs for activity levels between 8,000 and 10,000 units, in 1,000-unit increments.
Identify one potential cause of direct materials, direct labor, and manufacturing overhead variances in the production of the helmet.
Determine the cash payback period on the proposed production equipment purchase, assuming a monthly cash flow as indicated in the cash budget (requirement 10f).