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Accounting Principles (ISE) WileyPlus- COMPREHENSIVE PROBLEM CP26




Question;Comprehensive Problem: Chapters 19;to 26;26-CP26;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 need to provide the following information.;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.;Item;DirectMaterials;DirectLabor;Manufacturing Overhead;PeriodCosts;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);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 figures you assigned accordingly.;(f);What type of cost accounting system will you likely;use?job 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 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 cost, using the production;number you determined in(e).;(j);Project the number of helmets you anticipate selling the;first 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 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.;(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%.;(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.;(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.


Paper#42298 | Written in 18-Jul-2015

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