Professional Documents
Culture Documents
Management
Decision-Making
CA-1
Overview
CASE 1
Greetings Inc.:
Job Order Costing
CASE 2
Greetings Inc.:
Activity-Based
Costing
CASE 3
Greetings Inc.:
Transfer Pricing
Issues
CASE 4
Greetings Inc.:
Capital
Budgeting
CASE 5
Auburn Circular
Club Pro Rodeo
Roundup
CASE 6
Sweats Galore,
Inc.
CASE 7
Armstrong
Helmet
Company
CA-2
This case focuses on decision-making benefits of activitybased costing relative to the traditional approach. It also
offers an opportunity to discuss the cost/benefit trade-off
between simple ABC systems versus refined systems, and the
potential benefit of using capacity rather than expected sales
when allocating fixed overhead costs. (Related to Chapter 18,
Activity-Based Costing.)
This case illustrates the importance of proper transfer pricing for decision-making as well as performance evaluation.
The student is required to evaluate profitability using two
different transfer pricing approaches and comment on the
terms of the proposed transfer pricing agreement. (Related
to Chapter 22, Pricing.)
This case is set in an environment in which the company is
searching for new opportunities for growth. It requires evaluation of a proposal based on initial estimates as well as sensitivity analysis. It also requires evaluation of the underlying
assumptions used in the analysis. (Related to Chapter 26,
Planning for Capital Investments.)
This comprehensive case is designed to be used as a capstone activity at the end of the course. It deals with a not-forprofit service company. The case involves many managerial
accounting issues that would be common for a start-up business. (Related to Chapter 19, Cost-Volume-Profit; Chapter 21,
Incremental Analysis; and Chapter 23, Budgetary Planning.)
This case focuses on setting up a new business. In planning
for this new business, the preparation of budgets is emphasized. In addition, an understanding of cost-volume-profit
relationships is required. (Related to Chapter 19, Cost-VolumeProfit, and Chapter 23, Budgetary Planning.)
This comprehensive case involves finding the cost for a
given product. In addition, it explores cost-volume-profit
relationships. It requires the preparation of a set of budgets.
(Related to Chapter 15, Managerial Accounting; Chapter 19,
Cost-Volume-Profit; Chapter 23, Budgetary Planning; Chapter 24, Budgetary Control and Responsibility Accounting;
Chapter 25, Standard Costs and Balanced Scorecard; and
Chapter 26, Planning for Capital Investments.)
Case 1
Greetings Inc.
Greetings Inc.: Job Order Costing
Developed by Thomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel,
University of WisconsinMilwaukee
CA-3
CA-4
Greetings
customer purchases an unframed print, it is packaged and shipped the same day
from Wall Dcor. When a customer purchases a framed print, the print is framed
at Wall Dcor and shipped within 48 hours.
Each Greetings store has a computer linked to Wall Dcors Web server so
Greetings customers can browse the many options to make a selection. Once a
selection is made, the customer can complete the order immediately. Store employees are trained to help customers use the website to shop and to complete
their purchases. The advantage to this approach is that each Greetings store,
through the Wall Dcor website, can offer a wide variety of prints, yet the individual Greetings stores do not have to hold any inventory of prints or framing
materials. About the only cost to the individual store is the computer and highspeed line connection to Wall Dcor. The advantage to the customer is the wide
variety of unframed and framed print items that can be conveniently purchased
and delivered to the home or business, or to a third party as a gift.
Wall Dcor uses a traditional job order costing system. Operation of Wall
Dcor would be substantially less complicated, and overhead costs would be
substantially less, if it sold only unframed prints. Unframed prints require no
additional processing, and they can be easily shipped in simple protective tubes.
Framing and matting requires the company to have multiple matting colors and
frame styles, which requires considerable warehouse space. It also requires
skilled employees to assemble the products and more expensive packaging
procedures.
Manufacturing overhead is allocated to each unframed or framed print, based
on the cost of the print. This overhead allocation approach is based on the assumption that more expensive prints will usually be framed and therefore more
overhead costs should be assigned to these items. The predetermined overhead
rate is the total expected manufacturing overhead divided by the total expected
cost of prints. This method of allocation appeared reasonable to the accounting team and distribution floor manager. Direct labor costs for unframed prints
consist of picking the prints off the shelf and packaging them for shipment. For
framed prints, direct labor costs consist of picking the prints, framing, matting,
and packaging.
The information in Illustration CA 1-1 for unframed and framed prints was
collected by the accounting and production teams. The manufacturing overhead
budget is presented in Illustration CA 1-2.
Illustration CA 1-1
Information about prints and
framed items for Wall Dcor
Volumeexpected units
sold
Unframed
Print
Steel-Framed Print,
No Matting
Wood-Framed Print,
with Matting
80,000
15,000
7,000
$16
$20
$4
$6
$4
10 minutes
$12
20 minutes
10 minutes
$12
30 minutes
$21
$21
Cost Elements
Direct materials
Print (expected average
$12
cost for each of the
three categories)
Frame and glass
Matting
Direct labor
Picking time
10 minutes
Picking labor rate/hour
$12
Matting and framing time
Matting and framing
rate/hour
Greetings
$100,000
130,200
50,000
20,000
10,000
50,000
11,000
4,000
$375,200
Instructions
Use the information in the case and your reading from Chapters 15 and 16 of the text
to answer each of the following questions.
1. Define and explain the meaning of a predetermined manufacturing overhead rate that
is applied in a job order costing system.
2. What are the advantages and disadvantages of using the cost of each print as a manufacturing overhead cost driver?
3. Using the information in Illustrations CA 1-1 and CA 1-2, compute and interpret the
predetermined manufacturing overhead rate for Wall Dcor.
4. Compute the product cost for the following three items.
(a) Lance Armstrong unframed print (base cost of print $12).
(b) John Elway print in steel frame, no mat (base cost of print $16).
(c) Lambeau Field print in wood frame with mat (base cost of print $20).
5. (a) How much of the total overhead cost is expected to be allocated to unframed prints?
(b) How much of the total overhead cost is expected to be allocated to steel-framed
prints?
(c) How much of the total overhead cost is expected to be allocated to wood-framed
prints?
(d) What percentage of the total overhead cost is expected to be allocated to unframed
prints?
6. Do you think the amount of overhead allocated to the three product categories is reasonable? Relate your response to this question to your findings in previous questions.
7. Anticipate business problems that may result from allocating manufacturing overhead
based on the cost of the prints.
CA-5
Illustration CA 1-2
Manufacturing overhead
budget for Wall Dcor
Case 2
Greetings Inc.
Greetings Inc.: Activity-Based Costing
Developed by Thomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel,
University of WisconsinMilwaukee
CA-6
Greetings
CA-7
of improper product costing. She feels that the costs provided by the companys
traditional job order costing system are inaccurate. From the very beginning,
she has carefully managed production and distribution costs. She explains, Wall
Dcor is essentially giving away expensive framed prints, and it appears that it is
charging the stores too much for unframed prints. In her office she shows you
her own product costing system, which supports her point of view.
Your tour of the information technology (IT) department provided additional
insight as to why Wall Dcor is having financial problems. You discovered that to
keep the website running requires separate computer servers and several information technology professionals. Two separate activities are occurring in the
technology area. First, purchasing professionals and IT professionals spend many
hours managing thousands of prints and frame and matting materials. Their
tasks include selecting the prints and the types of framing material to sell. They
also must upload, manage, and download prints and framing material onto and
off of the website. The IT staff tells you much of their time is spent with framing
and matting material. Only a highly skilled IT professional can properly scan a
print and load it up to the site so that it graphically represents what the print will
look like when properly matted and framed.
In addition, you discover that a different team of IT professionals is dedicated
to optimizing the operating performance of the website. These costs are classified
as manufacturing overhead because a substantial amount of work is required to
keep the site integrated with purchasing and production and to safeguard Wall
Dcors assets online. Most time-consuming is the effort to develop and maintain
the site so that customers can view the prints as they would appear either unframed or framed and matted.
A discussion with the IT professionals suggests that the time spent developing and maintaining the site for the unframed prints is considerably less than
that required for the framed prints and in particular for the framed and matted
prints. Developing and maintaining a site that can display the unframed prints
is relatively straightforward. It becomes more complicated when the site must
allow the customer to view every possible combination of print with every type
of steel frame, and immensely more complicated when one considers all of the
possible wood frames and different matting colors. Obviously, a very substantial
portion of the IT professionals time and resources is required to present the over
1,000 different framing and matting options.
Based on your preliminary findings, you have decided that the companys
ability to measure and evaluate the profitability of individual products would be
improved if the company employed an activity-based costing (ABC) system. As
a first step in this effort, you compiled a list of costs, activities, and values. Your
work consisted of taking the original manufacturing overhead cost ($375,200,
provided in Case 1) and allocating the costs to activities. You identified four
activities: picking prints; inventory selection and management (includes general
management and overhead); website optimization; and framing and matting cost
(includes equipment, insurance, rent, and supervisors salary).
The first activity is picking prints. The estimated overhead related to this
activity is $30,600. The cost driver for this activity is the number of prints. It is
expected that the total number of prints will be 102,000. This is the sum of 80,000
unframed, 15,000 steel-framed, and 7,000 wood-framed.
Activity
Cost Driver
Estimated
Overhead
Picking prints
Number of prints
$30,600
Expected Use of
Cost Driver
(80,000 15,000 7,000)
102,000 prints
Illustration CA 2-1
Information for activity 1
CA-8
Greetings
Activity
Cost Driver
Inventory
Number of
selection and
components:
management Print (1)
Print and frame (2)
Print, mat, and frame (3)
Estimated
Overhead
Expected Use of
Cost Driver
$91,700
The third activity is website optimization. The total overhead cost related to
website optimization is expected to be $129,000. It was difficult to identify a cost
driver that directly related website optimization to the products. In order to reflect the fact that the majority of the time spent on this activity related to framed
prints, you first split the cost of website optimization between unframed prints
and framed prints. Based on your discussion with the IT professionals, you determined that they spend roughly one-fifth of their time developing and maintaining the site for unframed prints, and the other four-fifths of their time on framed
prints, even though the number of framed prints sold is substantially less than the
number of unframed prints. As a consequence, you allocated $25,800 of the overhead costs related to website optimization to unframed prints and $103,200 to
framed prints. You contemplated having three categories (unframed, steel-framed,
and wood-framed with matting), but chose not to add this additional refinement.
Illustration CA 2-3
Information for activity 3
Activity
Website
optimization:
Unframed
Framed
Estimated
Overhead
Expected Use of
Cost Driver
Number of prints
at capacity
$ 25,800
Number of prints
at capacity
$103,200
Unframed prints:
100,000 print
capacity
Framed and/or
matted prints:
25,000 print
capacity (16,000
steel; 9,000 wood)
Cost Driver
Once the $129,000 of the third activity was allocated across the two broad
product categories, the number of prints at operating capacity was used as the
cost driver. Note that operating capacity was used instead of expected units sold.
The overhead costs related to website optimization are relatively fixed because
the employees are salaried. If a fixed cost is allocated using a value that varies
from period to period (like expected sales), then the cost per unit will vary from
period to period. When allocating fixed costs it is better to use a base that does
not vary as much, such as operating capacity. The advantage of using operating
capacity as the base is that it keeps the fixed costs per unit stable over time.
Greetings
CA-9
The final activity is framing and matting. The expected overhead costs related
to framing and matting are $123,900. None of this overhead cost should be allocated to unframed prints. The costs related to framing and matting are relatively
fixed because the costs relate to equipment and other costs that do not vary with
sales volume. As a consequence, like website optimization, you chose to base the
cost driver on levels at operating capacity, rather than at the expected sales level.
The cost driver is the number of components. Steel-framed prints have two components (the print and frame), and wood-framed prints have three components
(the print, mat, and frame). The total components at operating capacity would
be steel frame 32,000 (or 16,000 3 2) and wood frame 27,000 (or 9,000 3 3,000).
Activity
Cost Driver
Framing and
matting cost
(equipment,
insurance, rent,
and supervisory
labor)
Number of
components
at capacity
Illustration CA 2-4
Information for activity 4
Estimated
Overhead
Expected Use of
Cost Driver
$123,900
To summarize, the overhead costs and cost drivers used for each product are
expected to be:
Activity
1. Picking
prints
Cost
Driver
Number of
prints
2. Inventory
Number of
selection and
components
management
3. Website
Number of
optimization
prints at
capacity
4. Framing and Number of
matting
components
at capacity
SteelWoodFramed, Framed,
No
with
Unframed Matting Matting
Total
Overhead
Cost
80,000
15,000
7,000
102,000
$ 30,600
80,000
30,000
21,000
131,000
91,700
100,000
25,800
103,200
100,000
na
16,000
9,000
25,000
32,000
27,000
59,000
123,900
$375,200
Instructions
Answer the following questions.
1. Identify two reasons why an activity-based costing system may be appropriate for Wall
Dcor.
2. Compute the activity-based overhead rates for each of the four activities.
3. Compute the product cost for the following three items using ABC. (Review Case 1 for
additional information that you will need to answer this question.)
(a) Lance Armstrong unframed print (base cost of print $12).
(b) John Elway print in steel frame, no mat (base cost of print $16).
(c) Lambeau Field print in wood frame with mat (base cost of print $20).
Illustration CA 2-5
Summary of overhead costs
and cost drivers
CA-10
Greetings
4. In Case 1 for Greetings, the overhead allocations using a traditional volumebased approach were $3.36 for Lance Armstrong, $4.48 for John Elway, and $5.60 for
Lambeau Field. The total product costs from Case 1 were Lance Armstrong $17.36,
John Elway $33.48, and Lambeau Field $48.10. The overhead allocation rate for
unframed prints, such as the unframed Lance Armstrong print in question 3, decreased
under ABC compared to the amount of overhead that was allocated under the traditional approach in Case 1. Why is this the case? What are the potential implications for
the company?
5. Explain why the overhead cost related to website optimization was first divided into two
categories (unframed prints and framed prints) and then allocated based on number of
prints.
6. When allocating the cost of website optimization, the decision was made to initially allocate
the cost across two categories (unframed prints and framed prints) rather than three categories (unframed prints, steel-framed prints, and wood-framed prints with matting). Discuss the pros and cons of splitting the cost between two categories rather than three.
7. Discuss the implications of using operating capacity as the cost driver rather than the
expected units sold when allocating fixed overhead costs.
8. (a) Allocate the overhead to the three product categories (unframed prints, steelframed prints, and wood-framed prints with matting), assuming that the estimate
of the expected units sold is correct and the actual amount of overhead incurred
equaled the estimated amount of $375,200.
(b) Calculate the total amount of overhead allocated. Explain why the total overhead
of $375,200 was not allocated, even though the estimate of sales was correct. What
are the implications of this for management?
Case 3
Greetings Inc.
Greetings Inc.: Transfer Pricing Issues
Developed by Thomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel,
University of WisconsinMilwaukee
CA-11
CA-12
Greetings
Mr. Burns offered you the challenge of helping him bring change to the
companys transfer prices so that both business units, Greetings stores and Wall
Dcor, win. From his explanation, you could see and appreciate that setting the
transfer price for unframed and framed prints impacts sale revenues and profits
for related items and for the company overall. You immediately recognized the
error in your presentation by simply providing a solution for Wall Dcor alone.
You drove home that night thinking about the challenge. You recognized the
need and importance of anticipating the reaction of Greetings store customers to
changes in the prices of unframed and framed prints. The next day, the marketing
team provided you with the following average data.
For every unframed print sold (assume one print per customer), that customer purchases related products resulting in $4 of additional profit.
For every framed print sold (assume one print per customer), that customer
purchases related products resulting in $8 of additional profit.
Each Greetings store sets its own selling price for unframed and framed
prints. Store managers need this type of flexibility to be responsive to competitive pressures. On average the pricing for stores is as follows: unframed
prints $21, steel-framed without matting $50, wood-framed with matting
$70.
Instructions
Answer each of the following questions.
1. Prepare for class discussion what you think were the critical challenges for Mr. Burns.
Recognize that Wall Dcor is a profit center and each Greetings store is a profit center.
Greetings
2. After lengthy and sometimes heated negotiations between Wall Dcor and the store
managers, a new transfer price was determined that calls for the stores and Wall Dcor
to split the profits on unframed prints 30/70 (30% to the store, 70% to Wall Dcor) and
the profits on framed prints 50/50. The following additional terms were also agreed to:
Profits are defined as the store selling price less the ABC cost.
Stores do not share the profits from related products with Wall Dcor.
Wall Dcor will not seek to sell unframed and framed print items through anyone
other than Greetings.
Wall Dcor will work to decrease costs.
Greetings stores will not seek suppliers of prints other than Wall Dcor.
Stores will keep the selling price of framed prints as it was before the change in transfer price. On average, stores will decrease the selling price of unframed prints to $20,
with an expected increase in volume to 100,000 prints.
Analyze how Wall Dcor and the stores benefited from this new agreement. In your
analysis, first (a) compute the profits of the stores and Wall Dcor using traditional
amounts related to pricing, cost, and a 20% markup on Wall Dcor costs. Next, (b)
compute the profits of the stores and Wall Dcor using the ABC cost and negotiated
transfer price approach. Finally, (c) explain your findings, linking the overall profits for
stores and Wall Dcor.
The following data apply to this analysis. (Round all calculations to three decimal
places.)
Unframed
Print
Average selling price by stores before
transfer pricing study
Average selling price by stores after
transfer pricing study
Volume at traditional selling price
Volume at new selling price
Wall Dcor cost (traditional)
ABC cost
Steel-Framed,
No Matting
Wood-Framed,
with Matting
$21
$50
$70
$20
80,000
100,000
$17.36
$15.258
$50
15,000
15,000
$33.48
$39.028
$70
7,000
7,000
$48.10
$55.328
3. Review the additional terms of the agreement listed in instruction 2 above. In each case,
state whether the item is appropriate, unnecessary, ineffective, or potentially harmful
to the overall company.
CA-13
Case 4
Greetings Inc.
Greetings Inc.: Capital Budgeting
Developed by Thomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel,
University of WisconsinMilwaukee
CA-14
Greetings
CA-15
Available Data
Cost of equipment (zero residual value)
Cost of ink and paper supplies (purchase immediately)
Annual cash flow savings for Wall Dcor
Annual additional store cash flow from increased sales
Sale of ink and paper supplies at end of 5 years
Expected life of equipment
Cost of capital
Amount
$800,000
100,000
175,000
100,000
50,000
5 years
12%
Instructions
Mr. Burns has asked you to do the following as part of your analysis of the capital
investment project.
1. Calculate the net present value using the numbers provided. Assume that annual cash
flows occur at the end of the year.
2. Mr. Burns is concerned that the original estimates may be too optimistic. He has suggested that you do a sensitivity analysis assuming all costs are 10% higher than expected and that all inflows are 10% less than expected.
3. Identify possible flaws in the numbers or assumptions used in the analysis, and identify
the risk(s) associated with purchasing the equipment.
4.
Illustration CA 4-1
Information about the
proposed capital
investment project
Case 5
CA-16
CA-17
Receipts
Contributions from sponsors
Receipts from ticket sales
Share of concession profits
Sale of programs
$22,000
28,971
1,513
600
Total receipts
$53,084
Expenses
Livestock contractor
Prize money
Contestant hospitality
Sponsor signs for arena
Insurance
Ticket printing
Sanctioning fees
Entertainment
Judging fees
Port-a-potties
Rent
Hay for horses
Programs
Western hats to first 500 children
Hotel rooms for stock contractor
Utilities
Sand for arena
Miscellaneous fixed costs
Total expenses
26,000
21,000
3,341*
1,900
1,800
1,050
925
859
750
716
600
538
500
450
325
300
251
105
61,410
Net loss
$ (8,326)
*The club contracted with a local caterer to provide a tent and food for the contestants. The
cost of the food was contingent on the number of contestants each evening. Information concerning the number of contestants and the costs incurred are as follows:
Friday
Saturday
Sunday
Contestants
Total Cost
68
96
83
$ 998
1,243
1,100
$3,341
On Wednesday after the rodeo, members of the rodeo committee met to discuss and critique the rodeo. Jonathan Edmunds, CPA and President of the Circular Club, commented that the club did not lose money. Rather, Jonathan said,
The club made an investment in the rodeo.
CA-18
CA-19
Case 6
CA-20
Cost
Useful
Life
$7,500
1,350
2,500
3,500
2,000
500
5 yrs.
10 yrs.
10 yrs.
4 yrs.
10 yrs.
5 yrs.
CA-21
CA-22
Shirts Sold
Maintenance Costs
Utility Costs
2,000
2,110
2,630
3,150
5,000
5,300
3,920
2,080
8,000
6,810
6,000
3,000
$1,716
1,720
1,740
1,740
1,758
1,818
1,825
1,780
1,914
1,860
1,855
1,749
$1,100
1,158
1,171
1,198
1,268
1,274
1,205
1,117
1,400
1,362
1,347
1,193
Michael estimates the number of shirts to be sold in the first five quarters,
beginning January 2013, to be:
First quarter, year 1
Second quarter, year 1
Third quarter, year 1
Fourth quarter, year 1
First quarter, year 2
8,000
10,000
20,000
12,000
18,000
The loan officer advised Michael that the interest rate on a 12-month loan would
be 8%. Michael expects the loan to be taken out as of January 1, 2013.
Michael has estimated that his income tax rate will be 20%. He expects to pay
the total tax due when his returns are filed in 2014.
Instructions
Answer the following questions.
1. Do you think it was important for Michael to stipulate his four criteria for the business
(see page CA-20), including the goal of generating a net income of at least $25,000 annually? Why or why not?
Year
5. Michael learned from talking with Jayne that the supplier is so focused on making
quality sweatshirts that many times the shirts are not available for several days. She
encouraged Michael to maintain an ending inventory of shirts equal to 25% of the next
quarters sales.
Prepare a shirt purchases budget for shirts using the format provided.
Sweats Galore, Inc.
Shirt Purchases Budget
For the Year Ended December 31, 2013
Quarter
1
Year
Shirts to be silk-screened
Plus: Desired ending inventory
Total shirts required
Less: Beginning inventory
Total shirts needed
Cost per shirt
Total cost of shirt purchases
6. Prepare a schedule of expected payments for purchases.
Sweats Galore, Inc.
Schedule of Expected Payments for Purchases
For the Year Ended December 31, 2013
Quarter
1
Accounts payable 1/1/13
First quarter
Second quarter
Third quarter
Fourth quarter
Total payments
CA-23
CA-24
Year
Units to be produced
Silk-screen labor hours per unit
Total required silk-screen labor hours
Silk-screen labor cost per hour
Total silk-screen labor cost
8. Prepare a selling and administrative expenses budget for Sweats Galore, Inc. for the
year ending December 31, 2013.
Sweats Galore, Inc.
Selling and Administrative Expenses Budget
For the Year Ended December 31, 2013
Quarter
1
Year
Variable expenses:
Sales commissions
Total variable expenses
Fixed expenses:
Advertising
Rent
Sales salaries
Office salaries
Depreciation
Property taxes and insurance
Total fixed expenses
Total selling and
administrative expenses
9. Prepare a silk-screen overhead expenses budget for Sweats Galore, Inc. for the year
ending December 31, 2013.
Sweats Galore, Inc.
Silk-Screen Overhead Expenses Budget
For the Year Ended December 31, 2013
Quarter
1
Variable expenses:
Ink
Maintenance
Utilities
Graphics design
Total variable expenses
Fixed expenses:
Rent
Maintenance
Utilities
Graphics design
Property taxes and insurance
Depreciation
Total fixed expenses
Total silk-screen overhead
Direct silk-screen hours
Overhead rate per silk-screen hour
Year
CA-25
CA-26
HELME
T
COMPA
NY
O
STR NG
Case 7
AR M
$15,500
11,000
0
1,500
800
1,500
1,000
300
500
400
70,000
6,000
10,000
40,000
900
70,000
0
0
0
0
70,000
0
CA-27
CA-28
ARMSTRONG
HELMET
COMPANY
10,000
8,000
10,000
20% of next months sales
1 kilogram
$7 per kilogram
.35
$20
Instructions
Using the data presented above (including data on page CA-27), do the following.
1. Classify the costs as either product costs or period costs using a five-column table as
shown below. Enter the dollar amount of each cost in the appropriate column and total
each classification.
Product Costs
Item
Direct
Materials
Direct
Labor
Manufacturing
Overhead
Period Costs
2. 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 costsfactory are a fixed cost.
Item
Variable
Costs
Fixed
Costs
Total
Costs
3. Prepare a schedule of cost of goods manufactured for the month of December 2013.
4. Determine the cost of producing a helmet.
5. Identify the type of cost accounting system that Armstrong Helmet Company is probably using at this time. Explain.
6. Under what circumstances might Armstrong use a different cost accounting system?
7. Compute the unit variable cost for a helmet.
8. Compute the unit contribution margin and the contribution margin ratio.
9. Calculate the break-even point in units and in sales dollars.
10. Prepare the following budgets for the month of December 2013.
(a) Sales.
(b) Production.
(c) Direct materials.
(d) Direct labor.
(e) Selling and administrative expenses.
(f) Cash.
(g) Budgeted income statement.
ARMSTRONG
HELMET
COMPANY
CA-29