This version is entirely “free-form” – that is – they do not provide you with an

Question

This version is entirely “free-form” – that is – they do not provide you with any data for the Bicycle Helmet Company. In order to help focus your efforts, however, I have provided you with some data to be used in completing the problem. (Note: You must use the data that I have provided here.)

Relevant data for the Bicycle Helmet Company --

Date:

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.)

(c)

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.

(e) Bicycle Helmet Company expects to produce 10,000 helmets in December 2012.

(f) For f, be sure to explain why.

(j) Bicycle Helmet Company expects to sell 9,000 helmets in December 2012.

(l)

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) The income taxes for December 2012 will not be paid until sometime in 2013.

(n) The flexible budget must be prepared at production levels of 8000, 9000, and 10000 units.

For n., the 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.

Explanation / Answer

Flexible budget for production levels of 8,000, 9,000, and 10,000 units: Flexible budget can be prepared as follows; To prepare the flexible budget we need the following information. Variable cost per unit: Direct material cost per unit = $6 Direct labor cost per unit     = $6.5 Total variable cost per unit  = 12.5 Here we have only two variable costs they are direct material and direct labor. Fixed costs: Rent on production equipment     = $6000
Insurance on building                   = 1500
Raw materials                             = 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 Total fixed cost                           = $214,400 Flexible budget:
Flexible budget for manufacturing overhead Levels of 8,000, 9,000, and 10,000 units Units produced 8,000 9,000 10,000 Variable costs ($12.5 per unit) 100,000 112,500 125,000 Fixed costs 214,400 214,400 214,400 Total 314,400 326,900 339,400 Flexible budget for manufacturing overhead Levels of 8,000, 9,000, and 10,000 units Units produced 8,000 9,000 10,000 Variable costs ($12.5 per unit) 100,000 112,500 125,000 Fixed costs 214,400 214,400 214,400 Total 314,400 326,900 339,400

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