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Question 2

ARMSTRONG HELMET COMPANY


1.

Item
Administrative salaries
Advertising for helmets
Depreciation on factory
building
Depreciation on office
equipment
Insurance on factory building
Miscellaneous expenses
factory
Office supplies expense
Professional fees
Property taxes on factory
building
Raw materials used
Rent on production
equipment
Research and development
Sales commissions
Utility costsfactory
Wagesfactory
Totals

Copyright 2012 John Wiley & Sons, Inc.

Direct
Materials

Product Costs
Direct
Manufacturing
Labor
Overhead

Period
Costs
$15,500
11,000

$ 1,500
800
1,500
1,000
300
500
400
$70,000
6,000
10,000
40,000
900
$70,000
$70,000

$70,000

Weygandt, Managerial Accounting, 6/e, Solutions Manual

$11,300

(For Instructor Use Only)

$78,100

Case 7-1

(Continued)
2.
Item
Administrative salaries .......................
Advertising for helmets ......................
Depreciation on factory building .......
Depreciation on office equipment .....
Insurance on factory building ............
Miscellaneous expensesfactory ....
Office supplies expense .....................
Professional fees ................................
Property taxes on factory building ....
Raw materials used ............................
Rent on production equipment ..........
Research and development ...............
Sales commissions .............................
Utility costsfactory ..........................
Wagesfactory ...................................
Totals ...................................................

Case 7-2

Copyright 2012 John Wiley & Sons, Inc.

Variable
Costs

Fixed
Costs
$15,500
11,000
1,500
800
1,500

1,000
300
500
400
70,000
6,000
10,000
40,000
900

70,000
$181,000

$48,400

Weygandt, Managerial Accounting, 6/e, Solutions Manual

Total
Costs
$15,500
11,000
1,500
800
1,500
1,000
300
500
400
70,000
6,000
10,000
40,000
900
70,000
$229,400

(For Instructor Use Only)

(Continued)
3.
ARMSTRONG HELMET COMPANY
Cost of Goods Manufactured Schedule
For the Month Ended December 31, 2013
Work in process, December 1 ...........
Direct materials
Raw materials inventory ..............
(Dec. 1)
Raw materials purchased ............
Less: Raw materials inventory
(Dec. 31) ..............................
Direct materials used .........................
Direct labor .........................................
Manufacturing overhead
Rent on production equipment.....
Insurance on factory building .....
Depreciation on factory
building ....................................
Utility costsfactory ...................
Property taxes on factory
building ....................................
Miscellaneous expenses
factory ......................................

$
$

70,000
0
$70,000
70,000
$ 6,000
1,500
1,500
900
400
1,000

11,300

Total manufacturing costs .................


Total cost of work in process ............
Less: Work in process (Dec. 31)........
Cost of goods manufactured .............

$151,300
151,300
0
$151,300

4.

Production cost per helmet = $151,300 [from 3.] 10,000 = $15.13.

5.

The Armstrong Helmet Company likely uses a process cost system.


Process costing is used when large volumes of a homogenous product are
produced on a continuous basis. Armstrong Helmet Company would find
it useful, using a process costing system, to identify the cost of each
production batch of bicycle helmets.

6.

If Armstrong Helmet Company decides to produce additional helmets


(e.g., baseball, hockey, football, etc., or different models of bicycle
helmets), it may find it useful to move to a job order costing system.

Copyright 2012 John Wiley & Sons, Inc.

Weygandt, Managerial Accounting, 6/e, Solutions Manual

(For Instructor Use Only)

Case 7-3

(Continued)
7. Unit variable cost
8.

= $181,000 (from 2.) 10,000 helmets


= $18.10 per helmet

Contribution margin per unit = Unit selling price Unit variable costs
= $40.00 $18.10
= $21.90
Contribution margin ratio

= Contribution margin per unit Unit


selling price
= $21.90 $40.00
= 54.75%

9. Break-even point in dollars: Sales dollars at the break-even point = Fixed


costs Contribution margin ratio
X = $48,400 (from 2.) 54.75%
X = $88,402
Break-even point in units = Fixed costs Contribution margin per unit
X = $48,400 $21.90
X = 2,210 helmets
10.
(a)
ARMSTRONG HELMET COMPANY
Sales Budget
For the Month Ended December 31, 2013
Expected unit sales ..........................................................
Unit selling price ...............................................................
Total sales .........................................................................

8,000
X
$40
$320,000

(b)
ARMSTRONG HELMET COMPANY
Production Budget
For the Month Ended December 31, 2013
Expected unit sales ..........................................................
Add: Desired ending finished goods units
(10,000 X 20%) .........................................................
Total required units ..........................................................
Less: Beginning finished goods units ...........................
Required production units ...............................................

Case 7-4

Copyright 2012 John Wiley & Sons, Inc.

Weygandt, Managerial Accounting, 6/e, Solutions Manual

8,000
2,000
10,000
0
10,000

(For Instructor Use Only)

(Continued)
(c)

ARMSTRONG HELMET COMPANY


Direct Materials Budget
For the Month Ended December 31, 2013
Units to be produced ........................................................
Direct materials per unit ...................................................
Total kilograms needed for production ...........................
Add: Desired ending direct materials (kilograms) .........
Total materials required....................................................
Less: Beginning direct materials (kilograms) ................
Direct materials purchases...............................................
Cost per kilogram ..............................................................
Total cost of direct materials purchases .........................

10,000
X
1kg
10,000
0
10,000
0
10,000
X
$7
$70,000

(d)
ARMSTRONG HELMET COMPANY
Direct Labor Budget
For the Month Ended December 31, 2013
Units to be produced ........................................................
Direct labor time (hours) per unit .....................................
Total required direct labor hours .....................................
Direct labor cost per hour ................................................
Total direct labor cost .......................................................

10,000
X
0.35
3,500
X
$20
$70,000

(e)
ARMSTRONG HELMET COMPANY
Selling and Administrative Expenses Budget
For the Month Ended December 31, 2013
Variable expenses
Sales commissions .......................................................
Total variable .....................................................................
Fixed expenses
Administrative salaries .................................................
Advertising for helmets ................................................
Depreciation on office equipment ................................
Office supplies expense ...............................................
Research and development ..........................................
Professional fees ..........................................................
Total fixed ..........................................................................
Total selling and administrative expenses ......................

Copyright 2012 John Wiley & Sons, Inc.

Weygandt, Managerial Accounting, 6/e, Solutions Manual

$40,000
$40,000
$15,500
11,000
800
300
10,000
500
38,100
$78,100

(For Instructor Use Only)

Case 7-5

(Continued)
(f)
ARMSTRONG HELMET COMPANY
Cash Budget
For the Month Ended December 31, 2013
Beginning cash balance ...................................................
Add: Receipts
Collections from customers
(75% of sales, $320,000) ...................................
Total receipts ................................................
Total available cash ..........................................................
Less: Disbursements
Direct materials...............................................
(75% of direct materials
purchases, $70,000)
Direct labor......................................................
Manufacturing overhead
($11,300 from part (1) $1,500
depreciation) ...........................................
Selling and administrative expenses
($78,100 from part (e) $800
depreciation) ...........................................
Total disbursements .............................
Excess (deficiency) of available cash over
disbursements .........................................................
Financing: Borrowing....................................................
Ending cash balance ......................................................

0
240,000
240,000
240,000
52,500
70,000
9,800
77,300
209,600

30,400
0
$ 30,400

(g)
ARMSTRONG HELMET COMPANY
Budgeted Income Statement
For the Month Ended December 31, 2013
Sales (8,000 X $40) ............................................................
Cost of goods sold [8,000 X $15.13 (from part (4.)] ........
Gross profit .......................................................................
Selling and administrative expenses ..............................
Income from operations ...................................................
Income tax expense (45%) ...............................................
Net income ....................................................................

Case 7-6

Copyright 2012 John Wiley & Sons, Inc.

Weygandt, Managerial Accounting, 6/e, Solutions Manual

$320,000
121,040
198,960
78,100
120,860
54,387
$ 66,473

(For Instructor Use Only)

(Continued)
11.
ARMSTRONG HELMET COMPANY
Monthly Flexible Manufacturing Costs Budget
For the Month Ended December 31, 2013
Activity level
Production in units ..............
Variable costs
Raw materials ($7)................
Wages ($7) ............................
Miscellaneous ($0.10*) .........
Total variable costs.....
Fixed costs ....................................
Total fixed costs ....................
Total costs .....................................

8,000

9,000

10,000

$ 56,000
56,000
800
112,800

$ 63,000
63,000
900
126,900

$ 70,000
70,000
1,000
141,000

10,300**
$123,100

10,300
$137,200

10,300
$151,300

*$1,000 10,000
**$11,300 [from (1)] $1,000 miscellaneous (variable cost).

Copyright 2012 John Wiley & Sons, Inc.

Weygandt, Managerial Accounting, 6/e, Solutions Manual

(For Instructor Use Only)

Case 7-7

Question 3 Incremental Analysis

Sales
Costs and expenses
Cost of goods sold
Selling expenses
Administrative expenses
Purchase price
Total costs and expenses
Net income
(1)
(2)
(3)
(4)
(5)

Net Income
Increase
(Decrease)
($ 600,000

Retain
Purchase
Old Machine
New Machine
$6,000,000 (1)
$6,600,000 (2)
4,500,000 (3)
900,000
500,000

5,900,000
$ 100,000

4,620,000 (4)
990,000
565,000
150,000 (5)
6,325,000
$ 275,000

( (120,000)
( (90,000)
( (65,000)
( (150,000)
( (425,000)
($ 175,000

12,000 X $100 X 5 years = $6,000,000.


$6,000,000 X 110% = $6,600,000.
$6,000,000 X (100% 25%) = $4,500,000.
$6,600,000 X (100% 30%) = $4,620,000.
$140,000 + $4,000 + $6,000 = $150,000.

Note: To be provided in Memo format with supporting evidence!


The new machine should be purchased. The incremental analysis shows that net
income will increase from $100,000 to $275,000 over the five years with the new
machine.

Case 7-8

Copyright 2012 John Wiley & Sons, Inc.

Weygandt, Managerial Accounting, 6/e, Solutions Manual

(For Instructor Use Only)