COMPREHENSIVE PROBLEM (Continued)
(j) Estimated number of helmets sold in December 2017 = 8,000 helmets
(good Christmas sales!)
Projected wholesale selling price = $40 per helmet
(k) Breakeven point in dollars: Sales dollars at the breakeven point =
Variable costs as a percentage of unit selling price X Sales dollars at
the breakeven point) + Total fixed costs
0.5475X = 0.4525*X + $48,400
0.5475X = $48,400
0.5475X = $88,402
(l) BICYCLE HELMET COMPANY
Sales Budget
For the Month Ended December 31, 2017
Expected unit sales …………………………………………………….. 8,000
COMPREHENSIVE PROBLEM (Continued)
BICYCLE HELMET COMPANY
Production Budget
For the Month Ended December 31, 2017
Expected unit sales ……………………………………………………….. 8,000
BICYCLE HELMET COMPANY
Direct Materials Budget
For the Month Ended December 31, 2017
Units to be produced ……………………………………………………… 10,000
Direct materials per unit …………………………………………………. X 1kg
Total kilograms needed for production ……………………………. 10,000
Add: Desired ending direct materials (kilograms) ………….. 0
BICYCLE HELMET COMPANY
Direct Labor Budget
For the Month Ended December 31, 2017
Units to be produced ……………………………………………………… 10,000
Direct labor time (hours) per unit ……………………………………. X 0.35
COMPREHENSIVE PROBLEM (Continued)
BICYCLE HELMET COMPANY
Selling and Administrative Expense Budget
For the Month Ended December 31, 2017
Variable (sales commissions) ………………………………………. $40,000
BICYCLE HELMET COMPANY
Budgeted Income Statement
For the Month Ended December 31, 2017
Sales revenue (8,000 X $40) ………………………………………….. $320,000
Cost of goods sold [8,000 X $15.13 (from part (e)] ………….. 121,040
(m) BICYCLE HELMET COMPANY
Cash Budget
For the Month Ended December 31, 2017
Beginning cash balance ……………………………………………….. $ 0
Add: Receipts
Collections from customers
COMPREHENSIVE PROBLEM (Continued)
BICYCLE HELMET COMPANY
Cash Budget (Continued)
For the Month Ended December 31, 2017
Less: Disbursements
Direct materials …………………………………………………. 52,500
(75% of direct materials purchases, $70,000)
Direct labor …………………………..…………………………... 70,000
Manufacturing overhead …………………………………….. 9,800
($11,300 from part (d) – $1,500 depreciation)
(n) BICYCLE HELMET COMPANY
Monthly Flexible Manufacturing Costs Budget
For the Month Ended December 31, 2017
Activity level
Production in units
Variable costs
Raw materials ($7)
8,000
$ 56,000
9,000
$ 63,000
10,000
$ 70,000
COMPREHENSIVE PROBLEM (Continued)
(o) Potential causes of a materials variance: price paid for plastics or any
other raw materials included in helmet; new employees; faulty equipment
(p) Cash payback period: Cost of capital investment ÷ Annual cash inflow
$720,000 ÷ [$30,400 (from part (m) X 12 months)] = 2 years (1.97 years).
CD26-1 CURRENT DESIGNS
(a) Current Designs should accept the special order based on the following
calculations:
Reject Order
Accept Order
Net Income
Increase (Decrease)
Revenues
$0
$25,000*
$25,000
(b) Assuming that Current Designs is currently operating with excess
capacity, it should accept the order based on the calculations shown
in part (a). If Current Designs is currently operating at full capacity, it
Costs
(19,000)
CD26-2 CURRENT DESIGNS
(a) Average investment = ($256,000 + 0) ÷ 2 = $128,000
Annual rate of return = $15,200 ÷ $128,000 = 11.88%
(c)
Event
Time
Period
Cash
Flows
9% Discount
Factor
Present
Value
Net annual cash flow
1-8
$ 47,200
5.53482
$ 261,244
Oven purchase
0
(256,000)
1.00000
(256,000)
(d)
Time
Cash
Present
Net annual cash flow
1-8
$ 47,200
4.48732
$ 211,802
BYP 26-1 DECISION-MAKING ACROSS THE ORGANIZATION
Retain
Old Machine
Purchase
New Machine
Net Income
Increase
(Decrease)
Sales
Costs and expenses
Cost of goods sold
Selling expenses
$6,000,000
4,500,000
900,000
(1)
(3)
$6,600,000
4,620,000
990,000
(2)
(4)
($ 600,000
( (120,000)
( (90,000)
(1) 12,000 X $100 X 5 years = $6,000,000.
BYP 26-2 MANAGERIAL ANALYSIS
(a)
Make
Buy—
Trans-
Tech
Buy—
Omega
Sales Revenue
Variable Manufacturing Cost:
Circuit Board
Plastic Case
Alarms (4 @ $.15 each)
$ 14.50
2.00
0.80
0.60
$ 14.50
0
0
0
$ 14.50
0
0
0
(b) There are several important nonfinancial factors described in the case.
Other factors might be identified as well. The factors described are:
The company is having serious difficulty manufacturing the clocks.
Therefore, it would probably be willing to have someone else manu–
BYP 26–2 (Continued)
(c) Many answers are possible, depending upon each student’s assessment
of the seriousness of the issues mentioned in (b). One answer would
BYP 26-3 REAL-WORLD FOCUS
(a) Before building the special-order new ceiling fans, company manage-
ment must consider the effect of the new lines on current production
capacity, existing and available channels of distribution, the effect on
BYP 26-4 REAL-WORLD FOCUS
The following solution is provided for the year ended July 29, 2012.
(a) The statement of cash flows indicates that capital expenditures
(purchase of plant assets) were $323 million in 2012, an increase of $51
million from the prior year.
BYP 26-5 COMMUNICATION ACTIVITY
To: Maria Fierro, Supervisor
From: , Assistant Chief Accountant
Subject: Recommendation for New Asset
The quantitative analysis pertaining to this management decision is as
follows:
1. Cash payback period: $190,000 ÷ $50,000 = 3.8 years.
2. Annual rate of return: $12,000 ÷ [($190,000 + $0) ÷ 2] = 12.63%.
BYP 26-6 ETHICS CASE
(a) The stakeholders are:
• Yourself.
(b) The ethical issue is:
• An employee’s personal interests and those of his co-workers
and the town versus the best interests of the company and its
stockholders.
BYP 26-7 ALL ABOUT YOU
(a) Chronic homelessness is defined as being on the streets for a year
or more.
(b) Homelessness costs cities money because the chronic homeless have
frequent jail time, shelter costs, emergency room visits and hospital stays.
Some costs per city per homeless person are: New York $40,000; Dallas
$50,000; San Diego $150,000.